U.S. home sales to international buyers appear to have subsided in the past year, according to a National Association of Realtors study released today.
The survey of 4,000 Realtors found that about 26 percent of participants worked with at least one foreign client from May 2007 to May 2008, down from 32 percent in the previous survey, conducted from April 2006 to April 2007.
“The decline in foreign home buying could reflect the general downturn in the U.S. housing markets. Foreign buyers — like U.S. buyers — may be waiting for home prices to continue to decline in order to purchase a property at a lower price,” the report suggests. “Some foreign buyers may be reticent to invest in a U.S. property until they are assured that their investment will ‘pay off.’ ”
Among those survey participants whose international clients successfully purchased homes in the United States, about 8.2 percent reported that these transactions represented the bulk of their business. That compares with 7 percent in the study released last year.
In the latest survey, 21.3 percent of respondents reported an increase in international business in the past five years, while 72.3 percent reported that the level remained constant and 6.4 percent reported a decrease in international business. In the 2007 survey, about two-thirds of participants reported that their international clientele accounted for about the same level of business during the previous five years while about 25 percent reported an increase.
Sale transactions with international clients represented a median 16 percent of overall business for those 2008 survey participants who completed at least one sale to an international buyer during the latest survey period.
Foreign or international buyers are defined as those who principally reside outside of the United States and are not classified as a foreign-born resident of the Unites States, according to the study.
The most common countries of origin for foreign buyers were much the same in the latest study as they were in the previous study, though with different proportions.
The share of buyers from Canada and Mexico grew from 23.4 percent of foreign buyers in the 2007 study to 32.7 percent in the latest study, while the share of European buyers shrank slightly — from 32.9 percent in the 2007 study to 31 percent in the latest study.
The share of Asian buyers shrank from 23.6 percent in the 2007 study to 22.4 percent in the 2008 study, and the share of Latin American buyers fell from 15.6 percent in the 2007 study to 9.8 percent in the latest study.
About 23.6 percent of foreign buyers were from Canada in the latest study, which was nearly double the number in the 2007 study. United Kingdom was next on the list at 12.5 percent, followed by Mexico at 8.7 percent, China at 7.5 percent, India at 6 percent, and Germany at 4.5 percent.
Mexico accounted for the largest share of foreign buyers in last year’s study, at 13 percent, followed by the United Kingdom at 12 percent, Canada at 11 percent, India at 6 percent and China at 5 percent.
In the 2008 study, about three-fourths (75.2 percent) of foreign buyers purchased single-family homes, with 19.2 percent purchasing condominiums or apartments and 6 percent purchasing town homes.
Buyers from Mexico had the highest share of single-family home purchases (at 91.8 percent) and the lowest share of condo/apartment purchases (at 2 percent) among the top six countries of origin for foreign buyers of U.S. property.
Meanwhile, buyers from Canada had the highest share of condo/apartment purchases (31.9 percent) and the lowest share of single-family home purchases (65.2 percent) and town home purchases (3 percent). Buyers from China had the highest share of town home purchases (14 percent).
About 46.8 percent of international property purchases in the United States were in the South, 30 percent were in the West, 12.9 percent were in the Northeast and 10.3 percent were in the West. Buyers from Europe made purchases predominantly in the West (47.6 percent) and in the South (42.9 percent), buyers from Europe were most likely to purchase in the South (55.6 percent), and buyers from Asia were most likely to purchase property in the West (37.4 percent) and in the South (31.3 percent).
Florida was by far the top destination among U.S. states for international buyers, drawing 25.4 percent of all sales to foreign buyers. California was next at 8.9 percent, followed by Arizona at 8.7 percent and Texas at 6.8 percent.
About 38.7 percent of Florida Realtors participating in the survey reported that they had no international clients, compared with 53 percent in Arizona, 69.8 percent in California and 74 percent of respondents in Texas.
Florida was a preferred destination for home sales by foreign buyers from North American (Canada and Mexico), Europe and Latin America, while California was the top choice for buyers from Asia. Buyers from China were most likely to buy in California, while buyers from Mexico were most likely to buy in Texas. Buyers from Canada, the United Kingdom and Germany were most likely to buy in Florida.
The median price foreign buyers paid for a U.S. home was $297,400, according to the survey, which far exceeds the U.S. median sales price of $217,900 in 2007. About half (50.6 percent) of foreign buyers paid $300,000 or less for a U.S. home, with 8.6 percent paying more than $1 million.
Buyers from Mexico were most likely to pay under $200,000 for a U.S. home (60.8 percent), while buyers from China were most likely to pay more than $1 million (14 percent). Likewise, the median price paid by buyers from China was the highest among the top six countries of origin ($450,000), while the median price paid by buyers from Mexico was the lowest among these nations ($164,500).
About 42.7 percent of foreign buyers paid all cash for the homes, according to the latest survey, compared with a 28 percent share of all-cash buyers in the previous year’s study. Buyers from Canada were most likely to pay all cash (69 percent) and buyers from India were least likely to pay all cash (23 percent).
About 55 percent of survey participants reported that the weak U.S. dollar had little or no impact on home sales to foreign buyers, while 38 percent reported a “significant impact.”
The primary purpose of the U.S. property purchase by foreign buyers was as a vacation home for family and friends (55 percent), with 13.4 percent reporting that the primary purpose was to acquire a rental property for investment, and 31.6 percent reported that the property served both functions.
Buyers from India were most likely to purchase properties primarily as rental properties for investment (24 percent), though this accounted for the smallest share of buyers from Germany (4 percent). Buyers from Canada were most likely to purchase a property as a vacation home (64.4 percent), and this was the least likely primary reason of purchase for buyers from India (16 percent).
On average, foreign buyers plan to stay in their U.S. property for 2.6 months of the year, according to the survey of Realtors who worked with the buyers.
About one-quarter of survey participants reported that they had international clients from May 2007 to May 2008 but were unable to close a real estate transaction with them, and they cited the property cost (54.1 percent), immigration laws that prevent foreigners from living in the U.S. continuously (27.4 percent), property taxes (24.2 percent) to U.S. tax laws (17.4 percent), insurance cost (12 percent) and loss of home country benefits (4.3 percent) as reasons that their clients did not end up buying a U.S. home.
Property costs in Arizona and California were a major perceived impediment to prospective foreign buyers, as were property taxes in Florida and Texas, insurance costs in Florida, and exposure to U.S. tax laws in Arizona and Texas.
The report also notes that the availability of mortgage financing — which has presented major obstacles for many domestic buyers — is even more troublesome for international buyers. “For international buyers, banks may require higher down payments than those for U.S. buyers — 30 percent or even higher. In addition, a tightening of U.S.-based credit requirements means that complete documentation is more of a necessity.” Even if foreign buyers do make a higher down payment, “banks and title companies require extensive documentation of income and financial health; these entities may have difficulties verifying foreign sources of this type of information.”
And language and cultural barriers can also complicate real estate transactions, respondents reported.
And while not addressed in the survey, the continuing housing slowdown, ongoing violent conflicts around the globe and high oil costs can also contribute to the uncertainty of foreign buyers. “One possibility is that potential foreign buyers may still be ‘on the fence’ — as are many domestic buyers — waiting for the housing market to bottom out,” the report states.