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Still a big foreign appetite for U.S. real estate

Tuesday, August 2nd, 2016 at 8:34am

NEW YORK – Aug. 1, 2016 – Foreigners are still craving U.S. real estate, led by an insatiable appetite of Chinese buyers.

The Chinese have outpaced all others in total purchases of U.S. residential properties over the past year and exceeded the buyers from the next four countries combined. According to a National Association of Realtors survey, the Chinese purchased three times more than second-place Canada, and also bought the most expensive homes. The median price of homes bought by the wealthy Chinese was nearly $550,000.

While the $27 billion in total purchases by the Chinese over the past year is a huge number, it is actually lower than a year ago. In combination, foreign buyers bought more than $100 billion in residential properties in the U.S. (for the period April 2015 to March 2016).

The $100 billion tally is also lower, albeit slightly, than a year ago, even though the number of purchases rose by nearly 3 percent to more than 214,000. The overall sales volume was still the second highest since 2009.

The slight drop in sales volume can be explained. Foreign buyers have begun to look beyond luxury markets like San Francisco, New York City and Washington, D.C. These markets have already experienced phenomenal appreciation. So savvy international buyers have begun shopping in the Southeast and Midwest, particularly in smaller, less-expensive cities like those in Florida.

Higher U.S. home prices may have deterred some international buyers, along with a stronger dollar. When the U.S. dollar rises in value, it costs more for foreigners (with their native currencies) to purchase properties here.

However, the U.S. economy continues to outshine nearly all foreign economies, as sort of a beacon among the darkness. And financial turbulence overseas, especially in Europe, has driven foreign buyers here.

Given the volatility in the global financial markets, U.S. real estate appears to be a safe, more stable investment. And U.S. real estate is still inexpensive compared to properties in Asia, for instance, so it has additional appeal.

Within the U.S., five states accounted for half of the foreign purchases, led by Florida with 22 percent of the total. California had 15 percent of the purchases, Texas 10 percent, and Arizona and New York at 4 percent each.

The most prevalent buyers in the warmer climates of Florida and Arizona included Latin Americans, Europeans and Canadians. Asian buyers flocked to California and New York, while Texas had a mix of these groups. Since demand for single-family rentals remains strong in Texas, property there may also be an investment play.

Meanwhile, the Chinese population continues to mature and expand on explosive growth in that country. Even though the growth there has slowed since its heyday, China's economy has produced many wealthy people. They are looking for new and better investments, and U.S. real estate meets that definition.

The upheaval in the United Kingdom has also benefited the U.S. property market. London had been a hotspot for foreign investors, but the financial center has slowed inevitably since the Brexit decision.

In addition, U.K. buyers had been the fourth-largest consumer of U.S. real estate. If a recession hits the U.K., which is probable with the shock of Brexit, this would also limit the buyers of real estate here.

But the economic fallout from Brexit is not yet known. What is known is that foreigners of all types like U.S. real estate.

Steve Nicklas is a financial advisor with a major Wall Street firm who lives on Amelia Island. His financial columns appear in several newspapers in North Florida.

Copyright © 2016 News Leader, Community Newspapers, Inc., Steve Nicklas. All rights reserved.

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