Study Reveals Lowest Home Purchase Rate by Foreign Buyers in 14 Years
According to a recent study by the National Association of Realtors®(NAR), international homebuyers saw a decline in real estate transactions over the past year, facing similar challenges as domestic buyers.
From April 2022 to March 2023, foreign buyers purchased a total of 84,600 properties, the lowest level since 2009 and down 14.2% compared to the previous year. In terms of investment, these buyers spent $53.3 billion on real estate, a decrease of 9.6% from the previous year.
This decline in purchase activity highlights the difficulties in the US housing market, including a shortage of available homes for sale and higher prices. Additionally, foreign buyers may face additional obstacles in Florida due to new legislation.
NAR’s chief economist, Lawrence Yun, stated that the decrease in international buyers can be attributed to the reduced housing inventory in the US and higher borrowing costs worldwide. However, the end of the pandemic and the subsequent recovery of international travel are expected to lead to an increase in foreign transactions in the coming months and years.
Analysts found that international buyers typically spent approximately $12,200 more on a home compared to domestic buyers. This is often due to their preference for popular coastal areas and cash purchases.
Notably, both the average sales price ($639,900) and median sales price ($396,400) for foreign buyers reached their highest levels on record, increasing by 7% and 8.3%, respectively.
In terms of property value, 15% of international homebuyers purchased homes valued at over $1 million during this period.
The study also revealed that 42% of foreign buyers made cash purchases, compared to 26% of the overall market. Non-resident foreign buyers accounted for 52% of cash transactions, while resident foreign buyers accounted for 32%.
Nearly half of the international buyers considered the property as either a vacation home, rental property, or both, in contrast to only 16% of all existing homebuyers.
Among all international buyers, Asians comprised the largest group at 38%, while Latin Americans accounted for 31% of the international buyer pool in the US.
The majority of foreign buyers came from China, representing at least 13% of all international purchases and investing $13.6 billion. Chinese buyers predominantly focused on high-priced areas such as California and New York, resulting in an average purchase price of $1.23 million and a median purchase price of $723,200.
Categorically, Mexican buyers opted for the most affordable US properties, favoring Texas as their ultimate destination. They constituted 11% of foreign buyers, injecting roughly $4.2 billion into the real estate market.
Canadians, ranking as the third-largest foreign buyer group, were the second-highest spenders per home. The average value of their purchases stood at $572,900, according to NAR. Canadians showed a tendency to acquire properties in popular vacation spots like Florida and Arizona. In total, they represented 10% of all international buyers, making a $6.6 billion investment in real estate.
India and Colombia rounded off the top five countries with international buyers, accounting for 7% and 3% of the foreign buyer market, respectively.
“The relaxation of pandemic lockdown policies in China led to an increase in home purchases by Chinese buyers, while strong GDP growth in India facilitated home buying from Indian buyers,” Yun commented. “The rise in sales from Mexican buyers can largely be attributed to a stronger Mexican peso against the US dollar.”
Foreign buyers have faced the same inventory challenges as domestic homebuyers. Many homeowners are hesitant to sell their properties and lose their current lower mortgage rates. Consequently, there has been historically low inventory of resale properties available on the market.
Although new home constructions have eased some of the shortage, they have proven insufficient. As a result, all buyers, including foreign buyers, have faced stiff competition for the remaining properties.
Furthermore, certain foreign nationals now encounter greater difficulties when purchasing property in Florida. Florida Governor Ron DeSantis enacted a new law prohibiting citizens from Cuba, Venezuela, Iran, Russia, China, North Korea, and Syria from acquiring agricultural land within the state, as well as real estate within 20 miles of airports, US military installations, or other critical infrastructure facilities. Chinese citizens acquiring land in restricted areas would face the most severe penalties compared to other groups.
This represents a setback for investment in Florida, which has remained the most sought-after destination for international buyers for 15 consecutive years. Latin American and Canadian buyers accounted for the majority of interest, as stated by NAR analysts.
A recent study revealed that the Sunshine State accounted for 23% of all international purchases, closely followed by California and Texas at 12% each. North Carolina, Arizona, and Illinois all shared a 4% slice in the market.
“Florida, Texas, and Arizona continue to attract foreign buyers, despite the hot weather conditions during the summer and the substantial increase in home prices that began a few years ago,” stated Yun.
Advocates for civil rights argue that the newly enacted law, effective as of July 1, 2023, violates both the Constitution and the Fair Housing Act, which safeguards homebuyers against discrimination based on race or national origin.
According to Luis Padilla, CEO of Oceanside Realty & Investment Inc./ Padilla Team in Florida, there are still many unanswered questions regarding the law, and it is currently facing a legal challenge.
“I believe it surpasses the responsibilities of real estate practitioners to act as national security agents,” Padilla previously told Yahoo Finance. “As a realtor, I consider this law to be harmful and bordering on redlining individuals solely based on their ethnicity or citizenship. If I must choose a side, I am not in favor of it.”