In a slow housing market, one type of buyer is still bullish on America — foreigners.
According to a new study by the National Association of Realtors, about one in five American real estate agents sold a second home in the year ending April 2007 to a foreign buyer, defined as someone who has legally entered the United States to buy a home. A quarter of the agents surveyed said their business with overseas buyers had increased over the past five years.
Interest is up primarily because the weak dollar gives foreigners more buying power, but also because American home prices are low compared to places like Britain and Japan. “A lot of them perceive the United States as a bargain,” says Ruth Krinke, a Steamboat Springs, Colo., real estate agent.
Buyers are coming from all over the world, the study says, but the biggest proportion — about a third — is from Europe, while a quarter come from Asia and 16% from Latin America. By country, the largest proportion of buyers comes from Mexico (13%), the United Kingdom (12%) and Canada (11%).
The study showed that 47% of foreign buyers were looking for a place to vacation, while 22% wanted an investment. Nearly a third cited both motives for their purchase. Though most purchased single-family homes or townhouses, 22% bought condominiums, compared to only 12% of American buyers.
Foreign buyers are well aware of the current anemic U.S. housing market. But prices in once-sizzling areas overseas, particularly in Europe, haven’t been putting in stellar performances, either. According to the Global Property Guide, an online research firm, overall home prices in Greece, Ireland, Spain, France and Israel all experienced declines of more than 7% in the first quarter of this year from the year before, compared to 4% in the U.S. for the same time period. Year-over-year prices in Europe’s strongest housing market, Riga, Latvia, fell 3.5% in June from a year earlier. According to NAR, U.S. year-over-year existing home prices were flat for June, while new home prices fell 2.2%.
Many foreign buyers are taking a long-term view of the U.S. market. Boris Kolchagov, a Bulgarian carpenter, purchased a two-bedroom condominium in Vail, Colo., two years ago for $320,000 and saw it increase 16% in value. He thought it was such a good investment, he’s now looking for a half-acre lot on a golf course somewhere in Colorado where he can build a 4,000-square-foot second home for himself. “The best place to live and invest is America,” says Mr. Kolchagov, adding that he plans to mitigate his risk by sticking to well-known resort towns, where homes tend to hold their value over time.
Like their American counterparts, many foreigners are avoiding the hard-hit Rust Belt: 41% bought homes in the South, while 31% were attracted to the West. A few Sunbelt states, notably Florida, California and Texas, are particularly popular with foreign buyers. But balmy weather isn’t the only attraction. Nancy Macaluso, a Palm Beach, Fla., agent, says they’re picking these places, and not cheaper resort areas in developing nations, because they don’t have to be concerned about economic upheavals, political coups or general lawlessness. “Here, they don’t have to worry about their children being kidnapped,” she says.
The study also showed that international buyers are spending more freely on houses than Americans are. The median price they paid was $299,500, compared to $221,900 for native-born buyers. Daniel Webster Johnson, a Breckinridge, Colo. real estate broker, says that overseas investors are so eager to buy these days, some are keeping cash in American banks or title companies so they can pounce immediately on a good deal. He says that many of his clients are trying to diversify their portfolios, or are trying to move their money away from older, overbuilt areas, like the ski resorts of Germany, where prices have stagnated over the past few years. Mr. Johnson has seen his international client roster increase by 15% over the past year.
But there are still obstacles for international buyers. Aaron Gordon, a Las Vegas mortgage banker, says that foreigners who need financing often turn to U.S. banks, because interest rates and down payment terms are usually much lower than they are in their home countries. But the stricter U.S. lending standards that went into place earlier this year after a wave of subprime loan defaults are being applied to foreigners as well as American citizens. “It’s becoming much tougher for them to qualify,” he says.
Rising anti-immigrant sentiments, even against legal and part-time residents, are a concern, too. The NAR study showed that international buyers spent an average of 4.2 months a year in their American homes. But real estate agents worry that tighter visa restrictions, spurred by terrorist fears, may curb international interest in the future, particularly for foreign buyers who eventually hope to retire in their U.S. vacation homes without giving up their native citizenship. Nancy Macaluso and her husband Tony, who is also a real estate agent, are lobbying their state and federal legislators to create a “silver” visa that will help them do that. “These people aren’t taking American jobs, and they’re not living on welfare,” she says. “They’re bringing their dollars to feed our economy.”