Foreign buyers continue to be a force in the U.S. real estate market. They purchased an estimated $104 billion in American real estate last year, according to the newly released NAR 2015 Profile of Home Buying Activity of International Clients. The Chinese led the way with $28.6 billion of those sales, outpacing Canada for the first time.
This represents a 13 percent jump over the previous year ($92.2 billion), and 8 percent of the total U.S. existing-home sales dollar volume. However, total unit sales decreased, indicating that high-end and luxury buyers may be dominating the international market.
“In 2014, the unit sales of homes to foreigners dropped 10 percent, possibly due to the strengthening of the U.S. dollar in relation to foreign currencies and weakening foreign economies,” said NAR Chief Economist Lawrence Yun. “However, the amount of money spent has increased; this means international purchasers in the U.S. have become an upscale group of buyers, spending more money on fewer homes.”
Five countries accounted for 51 percent of all purchases by foreigners: China, Canada, Mexico, India and the United Kingdom. For the first time, China exceeded all other buyers in terms of units purchased and dollar volume. Buyers from Canada followed with $11.2 billion in purchases, followed by India with $7.9 billion, Mexico at $4.9 billion and the U.K. with $3.8 billion.
Foreign buyers generally purchase more expensive properties, with the average purchase price being $499,600, compared to the overall U.S. average house price of $255,600. Chinese buyers typically purchased the most expensive properties, with an average price of $831,800.
In addition, they pay cash more often than domestic buyers. Fifty-five percent of foreign purchases were all-cash, compared to about 25 percent of all purchases by domestic buyers. This is likely due to the difficulties in obtaining mortgage financing for non-U.S. buyers because of a lack of a U.S. based credit history or Social Security number, difficulties in documenting mortgage requirements, and financial profiles that can be different from those normally submitted to financial institutions by domestic residents.
Where they are buying
While foreign clients purchased property across the nation, four states accounted for half of all international sales: Florida, California, Texas and Arizona. Florida remains the top destination for international buyers, claiming a 21 percent share of all foreign purchases; California comes in second with a 16 percent share, Texas with 8 percent and Arizona with 5 percent. Chinese buyers tended to gravitate towards the West Coast, which provides ample education, business and trade opportunities, while Canadians focused on the Southwest and Florida seeking winter vacation opportunities.
What they are buying
International clients purchase properties in the U.S. for residential, investment, and vacation purposes. About 46 percent of reported international transactions were intended for primary residences. They generally prefer a city or suburban environment – nearly half of international clients purchased in suburban areas. Existing single-family homes and condo/apartments are top choices, accounting for 80 percent of all purchases by foreign buyers.
Reaching the Closing Table
Based on information in the report, not all client interactions led to a purchase. About 43 percent of those who had international clients reported that they had at least one client who did not purchase a property. . “Could not find property”, “could not obtain financing”, “cost of property”, and “other reasons” accounted for many of the cases. For example, “Could not find property” accounted for 17 percent of the cases and may represent a case in which the REALTOR® had trouble connecting with the needs, desires, culture, or objectives of the potential purchaser.
What this means for U.S. REALTORS®
Meeting the needs of the international customer frequently requires an additional level of skills beyond those normally used by REALTORS®, such as special training regarding cultural issues, the informational needs of individuals not familiar with U.S. practices, and experience with regulations as regarding international purchases. For example, potential foreign buyers may also be unfamiliar with U.S. practices in regards to condo and other fees and property taxes. This may be an opportunity for the REALTOR® to educate the potential purchaser and to reduce buyer concerns.
“Working with a Realtor® gives foreign buyers a considerable advantage,” said NAR President Chris Polychron, executive broker with 1st Choice Realty in Hot Springs, Ark. “Realtors® who have completed the Certified International Property Specialist (CIPS) designation have obtained specialized training and are prepared to help clients with the unique challenges of being an international buyer.”
The full report is available at realtor.org/global.
Get information on CIPS