One market’s loss, is another market’s gain. Countries like Canada, the United Kingdom, Australia, and New Zealand are starting to see foreign buying tapering. However, the United States is starting to see a surge in foreign buying according to the National Association of Realtors (NAR). These numbers are showing explosive growth in both the transactions, and dollar volume.
Explosive Growth Across The United States
Foreign buying is experiencing growth across the United States according to NAR. In the 12 month period from April 2016 – March 2017, there were 284,455 homes bought by foreign buyers. This represents 32.37% growth from the previous 12-month period, and roughly 5% of all homes bought across the US. The total dollar volume of these homes works out to just over US$153 billion.
Source: NAR.
Canadians Most Likely To Be Non-Resident
An interesting breakdown of foreign buyers is how they use the homes. There’s two kinds of foreign buyers, resident and non-resident. Resident buyers are people that have immigrated to the US, or have obtained a long-term visa. Non-resident buyers are buyers that (at best) use the home occasionally. Sometimes these are people that have an occasional use family home, but often they’re just speculators that are holding property as an inflation sensitive currency hedge.
According to NAR, the majority of buyers from China, India, and Mexico were resident buyers. Buyers from Canada, and the United Kingdom were both mostly non-resident buyers.
Breakdown of Regions By Dollar Volume
The US has foreign buyers from all over the world, but just five countries are estimated to make up the majority of sales by dollar volume. Chinese buyers bought US$31.7 billion worth of real estate, a 16% increase year-over-year (YOY). Canadians bought US$19 billion worth of real estate, a massive 113% increase YOY. Residents of the United Kingdom bought US$9.5 billion, a 72% increase YOY. Mexicans bought US$9.3 billion in real estate, a 93% increase YOY. In fifth is India, with an estimated US$7.8 billion, a 27% increase YOY. This is huge growth, and likely to contribute to upwards pressure on home prices.
Source: NAR.
Breakdown of Regions By Transactions
In terms of the number of homes, the same five countries are estimated to top the list. Chinese buyers bought 40,572 homes, a 38% increase YOY. Canadians bought 33,819 homes, a 25% increase YOY. Mexicans bought 28,516 homes, a 59% increase YOY. Indians bought 14,934 homes, a 2.86% increase YOY. Residents of the UK bought 12,869 homes, a 40% increase YOY. That’s 46% of the 284,455 foreign purchases made across the US.
Source: NAR.
There’s two things that I think are important things to consider when looking at these NAR numbers – concentration, and new capital controls. While foreign buying across the country is only 5% of home purchases, there’s a lot of regions where foreign buyers aren’t even considering. This likely makes the concentration of foreign buyers much higher in markets like Los Angeles, and San Francisco. Conversely, the concentration in Poughkeepsie is probably a little lower.
The second point is China’s new capital controls were rolled out in January, along with a new anti-money laundering framework. This expected to drastically reduce the amount of capital that can exit the country. Even China’s largest overseas property firm estimates at least a 20% decline this year. Since these numbers are mostly 2016 months, expect Chinese buying to slow down dramatically in 2017.
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I presume that all of these purchases were made in American dollars. On the surface, that means up to $53 billion in foreign currency was converted to greenbacks to make these purchases.
However, what is NOT stated is how much mortgage money was used to buy these properties? And was the source of this mortgage money in the US, or off-shore?
And, most importantly, what is the definition of ‘resident’? If these units were rented out, to pay the mortgage, they would be paid for through American money, not money that left China, for instance.
Many Canadians buy investment property in tourist areas, and rent it out for American dollars, to pay the mortgage. In the end, they build up a substantial holding in American funds, without having to convert Canadian to American. In the US, mortgage payments are tax deductible, so the rent that comes in is offset by the tax deductible mortgage money paid out.
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