Benzinga and Yahoo Finance LLC may earn commission or revenue on some items through the links below.
The National Association of Realtors (NAR) recently published the results of its annual study tracking the number of homes foreign investors purchase in the United States. The data tells an interesting story. Although foreign investors spent a total of $42 billion buying homes in America between April 2023 and March 2024, this is 21% less than the previous year.
A deeper look at the numbers paints a clear picture of foreign investors cooling off the American market. The $42 billion in total sales represents transactions on 54,300 homes sold during the past year. That’s a 36% drop-off from the previous year and the lowest total since the NAR began recording information on foreign buyers in 2009. Benzinga examines this trend, what started it, and whether it creates an investment opportunity.
Trending: A billion-dollar investment strategy with minimums as low as $10 — you can become part of the next big real estate boom today.
This is a paid advertisement. Carefully consider the investment objectives, risks, charges and expenses of the Fundrise Flagship Fund before investing. This and other information can be found in the Fund’s prospectus. Read them carefully before investing.
What’s Driving the Sales Numbers Down?
A drop in purchases of more than 20% indicates more than one adverse market condition is keeping foreign investors from buying at the same rate as in the past. One of those conditions is most likely cost. According to the NAR, the average purchase price for foreign investors was $738,000. That’s not only a 21.9% increase over last year’s average price but also the highest average price ever recorded by the NAR.
Even for a well-off foreign national, $738,000 is a lot of money to spend on a property that may not be their primary residence. It’s even more money when you consider that foreign buyers are purchasing in U.S. dollars instead of their native currency. One of the less discussed offshoots of the Federal Reserve’s interest rate hikes is that it has significantly strengthened the dollar against other currencies worldwide.
That’s in addition to the borrowing costs that come with increased interest rates. All of this is making buying even more expensive for foreign investors. Lawrence Yun, the NAR’s Chief Economist, acknowledged this issue may be impacting the market when he said, “The strong U.S. dollar makes international travel cheaper for Americans but makes U.S. homes much more expensive for foreigners. Therefore, it’s unsurprising to see a pullback in U.S. home sales from foreign buyers.”
Demographic Factors Playing a Role
Two key demographic factors are likely contributing to the $738,000 average purchase price. Chinese nationals purchased a total of $7.5 billion in property, which is the highest combined dollar amount from any single country included in the NAR’s sales data. Twenty-five percent of those purchases were in California, and the average price of those homes is $1.3 million.
The Chinese economy is currently experiencing troubles in its real estate sector, which are dragging on the entire country’s finances. That means there is less money to go around for wealthy Chinese business executives (and their families) to buy homes abroad. It also means one of the most reliable demographics for foreign investment is scaling back.
Don’t Miss:
Geography is Another Issue Driving Sales Down
Geographic and climate-change-related factors are also probably driving down foreign investment in American homes. The NAR’s research showed that Florida was the preferred state for foreign homebuyers. Currently, Florida is experiencing a home insurance crisis, which has the state’s homeowners paying the highest premiums in the country—assuming they are lucky enough to get a policy at all.
Florida’s increasing vulnerability to extreme weather is driving its home insurance crisis. California also finds itself in a similar situation, as home insurers are leaving the state or raising premiums at alarming rates. Homes in both states seem to be at an ever-growing risk of climate disasters. The rapidly rising premiums, and the stress that comes with owning property in a danger zone, are also probably driving foreign investors to look elsewhere.
Does This Open the Door for You?
A slowdown in the purchasing of single-family homes may thin the potential competition from other buyers to some extent, but not likely enough to result in big price drops. Homes in California are still unaffordable. According to Zillow’s most recent data, the average home in California is worth $786,730, which is almost 7% more than this time one year ago. Florida is comparatively more affordable at $398,077, but you’ll still need insurance.
Your only option for buying without insurance in Florida is to pay all cash. That’s a tremendous risk when you consider much of the state is at risk of being hit by increasingly powerful hurricanes. So, as it turns out, the same factors causing foreign buying to slow down in the U.S. are causing American buyers to sit out the real estate market. Until prices or interest rates come down, this trend will likely continue.
Want To Cash In On Real Estate Without Buying A Home?
You don’t have to become a landlord to take advantage of the growth in real estate. The current high-interest-rate environment has created an incredible opportunity for income-seeking investors to earn massive yields by participating in real estate deals as a lender. The Arrived Homes Private Credit Fund provides access to a pool of short-term loans backed by residential real estate with a target 7% to 9% net annual yield paid to investors monthly. The best part? Unlike other private credit funds, this one has a minimum investment of only $100.
Don’t miss out on this opportunity to take advantage of high-yield investments while rates are high. Check out Benzinga’s favorite high-yield offerings.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
This article Foreign Real Estate Investors Are Buying Fewer Homes In The US. Do They Know Something You Don’t Know? originally appeared on Benzinga.com
