Foreign Investments Reshaping US Real Estate

Foreign investment in US real estate continues to be a cornerstone of the nation's housing market, bringing both capital and diversity to the landscape. As we delve into the latest data, this trend remains robust despite fluctuations influenced by global and domestic factors.

Key Statistics

Foreign investment in US real estate is a major source of capital inflows and demand for housing in the country. The overall market for foreign investment in US real estate exceeds $53 billion. Yes, you read that right - 53 billion dollars! Now, let's delve further into this market to gain a better understanding. 

• From April 2022 to March 2023, foreign buyers accounted for 1.8% of the 4.73 million existing-home sales, and 2.3% of the $2.3 trillion volume. 
• Their purchases totaled $53.3 billion, a 9.6% decrease from the previous period, reaching 2021 levels.
• Despite fewer purchases, the median price increased by 8%, remaining 3% higher compared to all U.S existing home sales.

Influence on Housing Market

Foreign investments have contributed to the rise in home prices and the decline in inventory in some US markets, especially those that attract a large share of foreign buyers. According to a study by Wharton researchers Gorback and Keys, house prices and rents have experienced an upward trajectory in areas that have witnessed substantial foreign investment. The research suggests that this phenomenon is closely tied to the economic vibrancy and job opportunities in these regions. The study highlights Seattle as a case example, illustrating the "demand shock" caused by foreign investment, leading to ripple effects in housing markets. The differential house price growth is not limited to high foreign-born neighborhoods but extends to the surrounding areas, emphasizing the broader impact of foreign investment on the housing market.

Who are the foreign buyers and where do they buy?

Foreign buyers of US real estate can be classified into two distinctive categories, each accounting for about half: non-resident foreigners who live abroad and purchase property for investment, vacation, or rental purposes and resident foreigners who are recent immigrants or hold visas that allow them to live in the US.

The top five countries of origin for foreign buyers in 2022-2023 were China, Canada, India, Mexico and Brazil, which together accounted for 44% of the dollar volume of purchases. China was the largest source of foreign investment, with $13.6 billion worth of purchases, followed by Canada with $6.6 billion and Mexico with $4.2 billion.

The top US destinations for foreign buyers were Florida, California, Texas, Arizona, and North Carolina, which together accounted for 55% of the properties purchased by foreign buyers in 2022-2023. Florida was the most popular state, attracting 23% of foreign buyers, followed by California and Taxes, each with 12%. These states offer attractive features such as warm weather, coastal locations, diverse cultural amenities, and economic opportunities. Check out our blog about the top states to invest in the US.

The Covid-19 Hiccup:

Undoubtedly, the Covid-19 pandemic influenced foreign investment dynamics, prompting adjustments amidst travel restrictions and economic uncertainties. However, the resilience of the US real estate market mitigated adverse effects, sustaining foreign interest and investment.

According to NAR data, foreign investment in US existing homes was on a three-year downward trend leading up to 2022. The market saw an increase of  8.5% in dollar terms in 2021-2022 compared to the previous year. However, this increase was driven by higher purchase prices rather than higher sales volume. In fact, the number of properties sold to foreign buyers decreased by 7.9% to the lowest level since 2009. Travel restrictions were likely responsible for the drop in closed transactions, while rising prices kept volume high. Notably, navigating these transactions can be complex, as typically investors have to travel to the US to open bank accounts and sign documents, adding an additional layer of logistical consideration for foreign buyers.

The pandemic also affected the preferences and behavior of foreign buyers. For example,

• Foreign buyers shifted their interest from urban areas to suburban or rural areas that offer more space and privacy. Plus the pandemic era restrictions on public places meant that a lot of the appeal of downtown area properties were unavailable, such as shopping, attractions, nightlife, etc.
• Foreign buyers purchased more detached single-family homes than other types of properties, reflecting their desire for more comfort and amenities, either for themselves or for potential renters.
• Foreign buyers paid more attention to online platforms and virtual tours to search and view properties, relying more on technology and less on personal visits.
• Foreign buyers increased their demand for rental properties, as they expected higher returns from the growing rental market amid the pandemic.

Current Investment Outlook

In the last decade, foreign investments have fluctuated in response to various factors like global economic conditions, political events, exchange rates, travel restrictions, and health risks. Foreign investment remains a strong force in shaping the American housing landscape, bringing in money and diversity to the market. As we navigate changing global and domestic situations, staying aware and adapting will be crucial for investors, real estate professionals, and policymakers alike.

By keeping an eye on these trends, stakeholders can take advantage of opportunities and strengthen the resilience of the US real estate sector. Waltz is making it simpler for international investors to succeed in the US market with a quick and easy financing process that can be done remotely. Talk to one of our experts to explore market conditions and financing options, and connect with local industry professionals.