Foreign buyers are cooling on U.S. residential real estate. NAR’s Profile of International Transactions in U.S. Residential Real Estate 2019 shows foreign purchases declined 36 percent from the previous 12 month period to $77.9 billion. That translates to 183,100 home purchases, or roughly 3 percent of existing home sales in the U.S. Chinese purchases of U.S. real estate declined 56 percent to $13.4 billion in dollar volume. NAR’s latest survey shows that the escalating trade war and stagnating global economy are definitely taking a toll on foreign investment in residential real estate in the United States.
“A confluence of many factors – slower economic growth abroad, tighter capital controls in China, a stronger U.S. dollar and a low inventory of homes for sale – contributed to the pullback of foreign buyers….“However, the magnitude of the decline is quite striking, implying less confidence in owning a property in the U.S.” Lawrence Yun, NAR chief economist
Even with that 56 percent decline in purchasing activity, China still led all countries in terms of dollar volume of purchases for the 7th consecutive year. Florida was the top destination for foreign home purchases, accounting for 20% of activity, followed by California with 12% and Texas with 10%. Mexico continues to be the most prolific foreign buyer in the Lone Star state.
The median purchase price of a foreign home buyer in the latest 12 month period was $280,600, while the average price stood at $426,100, down $28,300 from the previous year and near a six year low. The average home purchase from China was $674,900, while the foreign buyers from the UK averaged $738,700. It goes with out saying that your average international buyer is not hurting for cash, and 41 percent of foreign buyers paid for their homes in cash.
With the dearth of quality affordable homes in the U.S. it is also worth mentioning that only 47 percent of foreign buyers purchased their property for their primary residence. Residential real estate continues to be a recipient of global liquidity flows and speculative investment. For those who decided not to purchase a home in the U.S., the primary reason cited was the inability to find a property, followed by the cost of U.S. property. Property taxes were down at number 5 on the list of obstacles, suggesting state and federal polices on foreign investment remain very friendly to foreign investment, probably a little too friendly.
Big real estate brokerages love the fat commissions that come with those wealthy Chinese buyers, and some expensive U.S. real estate markets are feeling the pinch with that diminished sales activity. It’s worth remembering that Warren Buffet’s Berkshire Hathaway HomeServices inked a deal in 2017 with China’s largest property portal, Jawai.com, to advertise its listings directly to Chinese buyers. Last year Berkshire Hathaway scooped up local luxury broker, Ebby Halliday, expanding their presence in the Dallas-Fort Worth market. The U.S. real estate industry still loves Chinese home buyers, and there are few, if any questions asked about where the money comes from. Long-time citizens of Vancouver understand very well how money laundering works to drive up home prices. Average Americans are left to compete with the upward pressure on home prices resulting from wealthy foreign nationals and their all cash purchases.
NAR’s latest survey has a number of interesting data points, but the key takeaway is the dramatic drop in foreign purchasing activity during the latest 12 month period. With the global economy slowing and escalating debt within the global financial system, it is interesting to see that buyers are finally cooling on some of the speculative investment which has driven U.S. home prices to record highs in many markets, including Dallas-Fort Worth. Global central banks are pulling out all the stops in an attempt to keep the growth narrative intact, but the laws of gravity are knocking at the door as the business cycle comes to an end. As Lacy Hunt recently noted, piling more debt onto a debt problem continues to eat away at organic growth.
For its part, the Real Estate Center at Texas A&M is still clinging to the growth narrative as well. I find it interesting that James Gains and Luis Torres area able to see a “general trend upward” in Texas home sales when sales activity in the DFW area looks like this…
One would think that two PhD economists would be able to discern the difference between seasonal sales activity increases and a clearly noticeable trend in the real estate market. Texas Realtors would probably be a lot better off if the RECenter would quit cooperating with the Fed, and do some honest reporting on the housing market, including the Federal Reserve’s entanglement in it.