Foreign Buyers Aren't Playing A Key Role In The US Housing Recovery For 2 Reasons

Business Insider

Foreign buyers jumped into the U.S. housing market after the bubble burst. Since then it was argued that foreign buyers would help rescue the U.S. housing market. 

Now, the National Association of Realtors' (NAR's) latest report on international home buying activity, shows that this isn't the case. Citing their data Paul Diggle at Capital Economics writes:

"The survey covers the 12 months ending in March 2013, during which time foreigners not permanently resident in the US bought $34.8bn of residential property in the country, accounting for 3.2% of all transactions. That’s down from 4.4% in 2012 and a recent high of 4.6% in 2010.  

"Moreover, this decline isn’t simply a function of greater activity in the market as a whole. The value of foreign transactions fell outright too, by 16% from $41.2bn in 2012. So why are foreign buyers proving peripheral to the housing recovery?"

And why is this the case? Rising home prices, along with weakening currencies and a slowdown in many of their economies, has curbed major purchases on their part. 

"Since the start of 2011, however, currency movements have compounded house price gains to make US housing look more expensive for buyers from most of these countries. Over that period, the dollar has strengthened by 3% against the Mexican peso, 4% against the British pound and the Canadian dollar, 5% against the euro and 23% against the Indian rupee.?"

Diggle points out that China has been an exception with the renminbi rising 6% against the greenback since the start of 2011. And Chinese demand now accounts for 12% of foreign demand for U.S. homes, up from 5% in 2007.

Going forward Diggle doesn't expect international demand to help the U.S. housing recovery in any significant way. He does however expect Chinese demand to persist, despite the slower pace of growth.

For now Canada accounts for the largest share of foreign purchases, followed by China, Mexico, the UK, India, and Germany.

This chart from Capital Economics shows share of international purchases by nationality:

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Capital Economics



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