Posted on Tuesday, September 21, 2010
International Home Buying: Highlights from NAR's 2010 Survey
by Keunwon Chung, Statistical Economist NAR
International real estate purchases in the U.S. continue to account for a significant share of business for many REALTORS®. Beginning in 2007, NAR Research has conducted an annual survey of NAR members about their level of business with foreign clients. Results of the latest survey were released this past summer in The 2010 NAR Profile of International Home Buying Activity.*
In the July issue of Real Estate INSIGHTS, we looked at the economics of the international market. This month, we highlight some additional findings from the most recent survey.
REALTORS® and their International Clientele
After declining from 2007 to 2009, the share of REALTORS® reporting international clientele has increased. Of the REALTORS® surveyed, more than a quarter – 28 percent – served at least one international client in the 12-month period between March 2009 to March 2010. Additionally, more than half (18 percent) of those REALTORS® actually sold properties to international clients. Five percent of REALTORS® who had international clients obtained more than 50 percent of their sales from those clients.
Characteristics of Homes Purchased
There are many similarities between domestic home purchasers and those from abroad. But there are also differences. Like U.S. buyers, the majority of foreign buyers purchased a detached single-family home. Sixty-six percent of REALTORS® reported that their international clients bought a single-family home. Condominiums were also popular, accounting for 23 percent of foreign purchases. Townhomes and commercial properties accounted for smaller shares (eight and three percent, respectively).
Cash Payment Increases in Popularity
Foreign buyers generally paid more for their U.S. property than did domestic purchasers. The median price paid by international buyers was around $219,400, compared to the overall median price for an existing home of $173,000 (from April 2009 to April 2010). Foreign purchasers “on average” participated closer to the upper end of the market.
Despite the “higher price” typically paid for a U.S. home by foreign buyers, international purchasers were significantly more likely to pay cash for their U.S. property than were domestic buyers. According to the NAR REALTORS® Confidence Index, during the same period 79 percent of all home buyers in the U.S. financed the purchase of their home with a mortgage. But the majority of foreign buyers – 55 percent – paid cash for their purchase. In fact, the share of foreign buyers paying cash has increased steadily since NAR began conducting its international home buying survey.
There are various reasons for this trend. International home buyers may have difficulty obtaining a mortgage: the financial credit experiences, balance sheets, and credit profiles of international purchasers may not correspond to the profiles expected by U.S. financial institutions due to differences in customs and practices between countries. Consequently some international buyers who are credit-worthy are unable to qualify for a loan.
Impediments to Foreign Purchases
The U.S. does not restrict or scrutinize most property purchases by foreigners, as happens in other countries and there are few barriers to owning a property. Except to the extent necessary to enforce U.S. laws and regulations (including immigration and homeland security), foreign participation in the U.S. housing market is largely free. Even so, some foreign clients were unable to successfully purchase a home in the U.S.
Thirty-four percent of potential purchases could not be completed because of financing problems. But there were other reasons why foreign clients did not purchase (or were unable to purchase) U.S. properties:
Could not find a property
Cost of property
Exposure to U.S. tax laws
Loss of home country benefits
Challenges and Opportunities
While all property buyers face challenges – finding the right property, obtaining financing, or understanding the home-buying process – foreign buyers can face additional hurdles, primarily those of language, culture or a different property transaction process than survey results indicate that the majority of REALTORS® with foreign clientele are meeting those challenges.
Many international buyers continue to feel that U.S. real estate is a good investment and that the U.S. is a desirable location in which to own a property. It appears that the relative dollar value to other currencies is an important factor in influencing the purchasing decision. In addition, some buyers see U.S. real estate as relatively less expensive than comparable properties in their home countries. Such positive perceptions about U.S. real estate augers well for REALTORS® who have international clients.
*NAR has issued a number of reports based on surveys of international buyers. For those reports, as well as the complete 2010 Profile of International Home Buying (including information about the survey methodology), visit www.realtor.org/research/research/reports.intl.