Foreign Buyers Key to Real Estate Recovery

By Alain Pinel
Sr. Vice President / Managing Officer
Intero Real Estate Services, Inc.

It will come to no surprise to you that the impact of international home buyers on our domestic market is substantial and increasing rapidly. The reasons are many and I had the opportunity to abundantly write about those reasons in past blogs, right here. So it was comforting to read the actual stats, proving the point, in some official data released last week by NAR, the National Association of Realtors.

Take a good look at the year-to-date numbers for 2012: on average, foreign buyers spent nearly twice as much (89%) for a house as did American buyers! That’s a relatively new reality in the real estate business. If you are an agent today, you must integrate the fact that your market is not your father’s market. Homes and homeowners are roughly the same; buyers are not.

Looking at the national image, here is what you see: a typical international buyer is paying an average price of $400,000 for a house. This is to be compared to $212,000, which is the average price paid by an American. Not even close. And the delta between the two is likely to keep on growing this year and next.

With the declining US economy and a weaker dollar, our real estate is very much wanted by buyers from emerging economies and a host of other countries whose currencies now buy more dollars & therefore more property for the money than in years past.  Not only do international buyers pay more, but they also buy more & more of the good stuff. In 2010, according to the NAR study, they spent $66 billion in US real estate. In 2011, they spent $82 billion, a 24% increase in just one year.

Many states, if not most of them, are benefiting from those sales. The two top ones are the “sun & sand” states: Florida and California. Let me quickly say for the record that Florida & California are a heck of a lot more than just sand & sun, they are incredibly powerful economic giants… But the sun & the sand help when it comes to attracting international buyers.

In Florida, international buyers represent 26% of all sales. Not a bad balloon of oxygen when the real estate business is anemic, as it was the case over the last few years. The California numbers are also pretty significant: 11% of the sales involve buyers from outside the border. Perhaps even more significant is the fact that as the asking price goes up, so does the likelihood that the buyer comes from another country…

Where do those buyers come from? Well, the cake is plenty good enough & big enough to be split between a whole lot of countries. Two of them, however, dominate the pack: one that we all would expect, and one that we should expect. The first one is Canada. Our friends from the North account for 24% of all sales in the US, only a bit more than “usual”. The other one is China, with 11% of the sales. That’s more than double their percentage of 2009, just 3 years ago. At that tempo, Chinese buyers may represent half of the buying demand within ten years!

California is the State of choice for Asian buyers/investors. Florida, as is the case for much of the East Coast, is particularly appealing to Europeans. Those buyers, as Realtors know very well, are particularly powerful in a negotiation as they usually pay cash. It is the case for two-thirds of international buyers today. It was only a third in 2007.

Last year, as the study shows, one in four Realtors handled at least one international deal. What will it be this year and the next one? More, I bet. At least for as long as prices remain low and soft. Real estate agents, from one coast to the next, would be well advised to learn about international real estate, particularly at the buying end, and associate with those companies that have both a specialized division and a comprehensive global marketing program. Otherwise they will simply be irrelevant. Sellers & buyers Beware!

 

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