With pandemic travel restrictions currently being lifted, will more foreign residential real estate sales be the catalyst the U.S. housing market suddenly needs or will the exchange rate quell that?
Recently, the National Association of Realtors (NAR) issued their annual report on international homebuyers. This is what we learned about that report, the impact of the strong dollar on foreign buying in the U.S. and how Canada’s policy could impact property values to our north.
Not All Foreign Residential Real Estate Transactions Are All-cash
If you didn’t know any better, word on the street says that international homebuyers were only using cash to buy homes. That may be true in some areas, but according to the report from NAR, that is not the case uniformly across the nation. The nationwide data revealed that all-cash transactions accounted for less than half (44%) of international homebuyer purchases. But still a huge percentage when you consider that in 2021, 32% of all existing homebuyers opted for all-cash offers vs. mortgages (up 14.2% from 2020).
International Homebuyers Returned to the U.S. after Pandemic Restrictions Lifted
International investors have historically viewed U.S. real estate as an attractive and stable investment. From April 2021 through March 2022, they bought $59 billion worth of U.S. existing homes, an 8.5% increase from the previous 12-month period, stopping a three-year skid in foreign investment in U.S. residential real estate.
“For the second year in a row, restrictions and general caution tied to international travel during the pandemic slowed homebuying by wealthier foreign buyers,” said NAR Chief Economist Lawrence Yun. “Even so, domestic homebuying demand was exceptional and, therefore, boosted home sales nationally.”
The Strength of the U.S. Dollar Is Suddenly Keeping Foreign Buyers Out of the New York City Market
The strong dollar is delaying the return of international buyers to New York’s luxury housing market, according to Douglas Elliman Chairman Howard Lorber.
“We assumed that with Covid under control, we hope that we’re going to see all these foreigners come into the market and start buying houses,” Lorber said in an interview on Bloomberg Television. “It hasn’t happened because the dollar is so strong.”
Canada: Blocking Foreign Buyers – Will This Drive More U.S. Purchases or Could the U.S. Follow Their Lead?
Recently, Canadian Finance Minister, Chrystia Freeland, announced a ban on foreign ownership of homes. In an effort to curb home price growth in Canada, and prevent prices from rising so high that working-class and young Canadians are pushed-out of the real estate market, this restriction has been announced.
In a statement Freeland said, “We will make the market fairer for Canadians. We will prevent foreign investors from parking their money in Canada by buying up homes. We will make sure that houses are being used as homes for Canadian families rather than as a speculative financial asset class.”
The U.S. is not taking drastic measures like Canada, not yet anyway. Currently, nearly 7 out of 10 Canadian buyers (69%) made all-cash purchases in the United States, the highest share among foreign buyers.
International Buyers Accounted for Less than 100,000 Purchases in 2021
At the end of the day, foreign buyers purchased 98,600 properties in 2021, down 7.9% from the prior year. This was the fewest number of homes bought by foreign buyers since 2009, when NAR began tracking this data. That is very different from overall home purchases in the U.S., with existing-home sales totaling 6.12 million in 2021 – the highest annual level since 2006. But even while the percentage of international homebuying purchases was down, “the average ($598,200) and median ($366,100) existing-home sales prices among international buyers were the highest ever recorded by NAR – and 17.7% and 4.1% higher, respectively, than the previous year.” So, their participation in the U.S. Residential housing market is vital to its growth, but perhaps…just perhaps, if foreign buyers take a pause, it could help the U.S. market create a healthier foundation for future growth, even if that means a temporary contraction in real estate values.