Who are the foreigners spending the most amount of money on real estate purchases in the United States?
The answer is unequivocally, buyers from China.
Buyers from China far exceeded second place Canadian buyers by about 3 to 1 in the gross dollar amount spent on home purchases.
The Chinese buyers are attracted to luxury end properties and have bigger budgets. The average home price for the 2015 calendar year for purchasers from China was about $830,000 as compared to approximately $500,000 for all other foreign buyers.
The growing trend as reported by many real estate analysts and data tracking companies is that there is higher demand from foreign buyers now for properties in more affordable markets and a weakening demand in the luxury markets. Also, diversification of types of properties is growing to include commercial properties including office towers and hotels.
Between 2010 and 2015, the Chinese bought $93 billion in U.S. residential real estate and $17 billion in commercial real estate.
The expectation is that there will be more inventory coming to market in luxury neighborhoods and less inventory available at the lower price points. Less inventory at the lower price points is expected to create multiple offers pushing prices up and creating a better rate of appreciation.
Chief Economist for the National Association of Realtors (NAR), Lawrence Yun is optimistic in the near term. He expects U.S. real estate to do well even if sales activity from U.K. buyers diminishes in the coming year as the result of Britain’s leaving the European Union.
Yun explains as follows, “with economic instability and political turmoil outside of the U.S. likely to persist, the world view of American real estate as a safe investment should keep demand firm even as pressures from a stronger dollar continue to weigh down on affordability.”
Where in the United States are most foreign buyers investing? Five states accounted in 2015 for one half of the purchases made by foreign investors. Those states are: Florida (22%), California (15%), Texas (10%), Arizona (4%) and New York (4%.)
Buyers from Europe, Latin America and Canada dominated the buyers for Florida and Arizona preferring warmer climates. Buyers from Asian countries favored the coastal metropolitan cities of Los Angeles and New York. Texas drew buyers from Asia and Latin American countries.
The biggest beneficiaries of the U.K. decision to exit the E.U. are likely sellers in the United States who hold real estate properties in neighborhoods desirable to foreign buyers and at the price points that will attract foreign buyers.
Weakness is likely to be seen at the “luxury” price points according to a 2015 study by the National Association of Realtors. This is because dropping stock markets negatively impact luxury buyers who typically use their stock accounts to fund luxury purchasers.
Even with data that shows United States growth is weakening, on average home sales are growing nationally at the rate of 5% to 6% over sales a year ago.
The average 30 year fixed conforming rate loan is at 3.5%. With lower rates, a buyer is purchasing power becomes greater making a home more affordable. However, the lack of inventory is still a problem for buyers. Tightening credit is also predicted to be a problem for many.
With the uncertainty overseas comes uncertainty here as well as to the ultimate impact on the United States of the global economic turmoil. Yun explains that “any prolonged market angst and further economic uncertainty overseas could negatively impact our economy and end up tempering the overall appetite for home buyers.”
According to the most recent report from Case Schiller, the period of time homes were on the market before selling in May 2016 averaged 30 days compared to 40 days in May 2015. The shorter selling time evidences that even with prices hitting new peaks, demand is still there.
If you are a buyer, since mortgage interest rates affect your financial health and are based on your credit history, looking into how to improve your credit rating can be a big benefit especially over the long term.
Here are a few tips on what to consider to improve your credit: (1) credit utilization; (2) improve debt to income ratio; (3) consider a shorter term fixed rate mortgage; (4) weigh fixed vs. adjustable rate mortgage and (5) consider paying points up front if you expect to hold your property longer term.