Many paying cash as dollar falls in value
Two years ago, while attending a home-builder convention in Orlando, Fla., a top-producing local real estate agent was bubbling over the interior design features of a vacation home.
“All of my international buyers are just going to love this,” the agent said. “I can’t wait to tell them what’s now available.”
I was intrigued. How many international buyers did she have?
It turned out that more than 60 percent of the agent’s clients were buyers from overseas. And, she is not the only real estate professional cultivating the foreign market. According to the National Association of Realtors, 65 percent of Florida Realtors had at least one international customer, and the trade group’s “Profile of International Home Buying Activity” indicated that at least 7 percent of home sales in Florida were to foreign purchasers.
“When you consider how the U.S. dollar has slid in value compared to other international currencies, you begin to understand why investors are purchasing real estate in this country,” said Mitch Creekmore, senior vice president of Stewart Title Co. “Real estate prices here are a bargain compared to many areas in western Europe and Asia.”
The currency environment probably played a major role in the proportion of foreign buyers who paid cash for their homes. The cash group (28 percent) was much greater than that of the general U.S. home buyer population (8 percent). In addition, international buyers who can afford a home abroad often are from wealthier households with higher monthly incomes and cash reserves. Also, the tax benefits of mortgage-interest deductions may not apply — depending on the buyer’s home country’s tax code — which lowers the incentive to take out a mortgage.
Buyers come from around the world to buy different types of properties at various prices. They plan on using the U.S. property for different reasons. Here are some common factors from NAR:
- The typical international buyer purchased a single-family home or townhouse. The primary purpose in purchasing the home was as a vacation venue for family and friends.
- The median sales price paid by the typical foreign buyer was $299,500, and the purchase was financed through a mortgage loan.
- The typical foreign buyer in the U.S. spends 4.2 months in his or her U.S. property. U.S. visa rules allow nonresidents (unless under a student or work visa) to remain in the country for only six months. Because foreign buyers are nonresidents of the U.S., most of them plan to spend less than six months in their U.S. home. A small percentage — 6 percent — spend less than two weeks. Forty-four percent intend on using their U.S. property for one to six months.
While the top three state destinations for foreign home buyers in the NAR study were Florida, California and Texas, significant overseas buyers surfaced in all areas of the country. Dolly Lenz, a New York City residential specialist who led all salespersons with $748.3 million in gross sales in 2007, reported that approximately 35 percent of her customers were second-home buyers and about 50 percent of that group lived outside the U.S.
The median price foreign buyers paid for a home was $299,500 in 2006 — significantly greater than the national median sales price of $221,900. More than 20 percent of international buyers purchased a home that cost between $200,001 and $300,000. Fourteen percent of foreign home buyers paid more than $750,000 for their U.S. property, according to the NAR study.
Among international clients, the top five countries of origin were Mexico, the United Kingdom, Canada, India and China. Although more than two-thirds of Realtors report that their international clientele accounts for about the same level of business during the past five years, fully a quarter of them indicate that their international business has increased. Despite the recent slowdown in the U.S. housing market, U.S. real estate is still a popular option for many people outside of the country.
Foreign buyers from the United Kingdom and China paid the most for their U.S. property — a median of $335,000 and $340,000, respectively. Those from Mexico paid the least — $227,300. Buyers from Canada were more likely to have purchased homes priced over $1 million. The median price of homes purchased by Indian buyers — $292,000 — was closest to the overall median price paid by all foreign home buyers.
The American dream of home ownership is more popular than ever — especially overseas.
Copyright 2008 Tom Kelly