The National Association of Realtors (NAR) recently released a study of foreign activity in the US real estate market. The industry group had some interesting findings. Overall, its findings reinforce the perception held by many realtors and economists: purchasing activity by foreigners eager to take advantage of the weak dollar has been providing the national real estate market with a very large stimulus.
Roughly a quarter – 26% – of all realtors surveyed reported having worked with foreign buyers in the past twelve months. Of those, roughly half reported completing a purchase.
The 26% figure is especially striking given that many of the realtors surveyed work in markets that garner little to no international attention. So, the actual numbers for places like L.A. and New York City are likely to be at least twice as high.
The power of geography reared its head in the study. The most frequent foreign purchasers of US real estate were not just euro zone states that enjoy steep effective discounts in the market because of their currency’s strength vis-a-vis the US dollar. The top six purchasing countries were, in order: Canada, the United Kingdom, Mexico, China, India and Germany.
Like US buyers, the single most popular purchase was a stand-alone single family home. Interestingly, foreign buyers spent an average of 36% more than the typical US home buyer.
Strikingly, foreign buyers were far more likely than their domestic counterparts to purchase luxury homes. According the the study, 14% of all foreign buyers purchased homes with a value of $750,000 or more.
Foreign buying activity was greatest in the moderate to warm climates in the south and west. Benefiting from the international reputation of New York City, New York State was the only temperate climate state to be in the top four states for foreign buying activity.
Interestingly, one of the largest barriers to foreign purchases was not regulation and restrictions, but the perception of them. Purchasing a home in the United States is considerably easier than in most first world countries, and foreign buyers face very few extra hurdles to purchasing a home. Nonetheless, foreign buyers were wary of being treated as second class customers – a perception perhaps created by the FAA’s extensive travel regulations.
High property taxes was another major deterrent among foreign buyers. Unlike many countries, the United States funds most of its public education system through property taxes, and those tax rates are accordingly higher.
The euro continued to aid the country’s real estate market, even increasing its influence, having gained 24% over the dollar in the past two years. While the dollar has strengthened recently, questions remain as to how long it can hold on to its gains. Furthermore, as more and more foreign buyers realize the incredible deals available in the US housing market, it is likely that foreign buying activity will continue to strongly influence the market.