The pandemic’s border closures and lockdowns dinged the international buyer market over the past year, but signs point to a resurgence among new buyers and those who postponed a purchase. Economists say today’s buyers should expect to face even more competition.

NEW YORK – While the global COVID-19 pandemic has squashed sales of U.S. homes to foreign buyers over the last year, local buyers should be prepared for a rebound in competition from other countries in the next 12 months, economists say.

Texas ranked as the third-most-popular destination for foreign real estate buyers between April 2020 and March 2021, according to a recent report by the National Association of Realtors. Florida and California claim the top two spots, while Arizona, New Jersey and New York follow Texas.

Chinese clients have been the top buyers of U.S. residential homes by sales-dollar-volume for a decade, and continue to rank No. 1 even as sales from April 2020 through March 2021 plunged 70% from the same period a year earlier.

Housing market gets more competitive

The downward trend was reflected across international buyers of all nationalities (China is followed by Canada, India, Mexico and the United Kingdom) who purchased 3%, or $54.4 billion, worth of U.S. existing homes from April 2020 through March 2021, a 27% decrease from the previous 12 months.

The decline in foreign real estate investments last year is hardly surprising given the global pandemic and travel restrictions that came with it. But what will happen when vaccinations pick up pace globally and things begin to get back to normal? Will the pent-up foreign demand put pressure on a U.S. housing market grappling with low housing inventory and soaring prices?

Economists say you should expect to compete with those buyers, especially since a large percentage of foreign buyers tend to make all-cash offers. Those offers, which are preferred by sellers as they provide certainty, accounted for 39% of international buyer transactions from April 2020 to March 2021, according to the National Association of Realtors.

That’s significant since the demand for U.S. homes by foreign investors pushes up home prices, exacerbating concerns over housing affordability, says Benjamin Keys, a professor of real estate in the Wharton School at the University of Pennsylvania.

House prices climbed 8 percentage points more in U.S. ZIP codes with high foreign-born Chinese populations from 2012 to 2018, according to a 2020 paper co-written by Keys.

Even without foreign buyers driving up the market, the median price of existing U.S. homes in June reached $363,300, up 23.4% from June 2020.

Home prices top $300K

The median existing-home sales price among international buyers from April 2020 to March 2021 touched $351,800, 15% more than the $305,500 median price for all existing homes sold in the U.S., according to the National Association of Realtors.

The price difference primarily reflects the locations and type of properties desired by foreign buyers. At $476,500, Chinese buyers had the highest median purchase price and more than a third purchased property in California.

The number of available homes for sale has improved since June as more construction gets underway for higher-priced homes and a greater number of existing homes hit the market. Still, the supply of lower-priced homes remains tight, says Lawrence Yun, chief economist for the National Association of Realtors.

“Not having as active of a foreign buyer market last year was a welcome change, especially when we were dealing with a severe housing shortage,” says Yun. “Now with the vaccinations making progress, it’s inevitable that in the next 12 months there will be a lot of interest.”

Housing markets appeal to foreign investors (which peaked at 10% of existing home sales in 2017) looking for healthy returns, vacation homes, safe havens for their money, or a way to dodge tax restraints and corruption crackdowns at home, Keys says.

Foreign investment had steadily increased from $66 billion in 2009-2010 to $153 billion in 2016-2017, but slipped to $54 billion this year.

Experts have blamed the drop on factors including capital controls by China, a weakened Canadian dollar, which makes it more expensive for Canadians to buy homes in the USA, and a rise in anti-immigrant rhetoric.

During the height of the pandemic, Keys says it was “impressive” that the number of foreign buyers stayed as high as it did, given the restrictions and international lockdowns. Foreign buyers used virtual tours to view homes and could make their purchases remotely.

In the coming months, foreign demand could pick up, worsening an already tight housing market, Keys says.

Millennials, low interest rates keep the market crowded

“Interest rates are very low. A generation of millennials who have not had the financial wherewithal to buy houses are aging into (their) homebuying years,” he says. “And those whose jobs weathered the pandemic are in a good financial position to purchase a home right now.”

Adding foreign buyers to the mix could mean that home prices in states such as Florida, California, Texas New York and New Jersey (the top 5 most popular states among international buyers), will continue to soar, benefitting homeowners and making it harder for those looking to enter the market.

“The foreign buyers I’ve spoken with are planning future travel to South Florida to view properties,” who has sold properties to buyers from Canada, Colombia, Venezuela, Italy, Austria, and the U.K. “I’ve also visited several properties and viewed the properties with the buyers virtually through FaceTime, Whatsapp, and Zoom.”

 

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