Real Estate Trends and Tips… The Significance of Foreign Home Buyers

The international real estate market is defined as non-resident foreigners purchasing real estate in the United States.  Data from the National Association of Realtors (NAR) 2012 Profile of International Home Buying Activity, says four states – Florida, California, Texas and Arizona – accounted for 51 percent of total U.S. residential home sales to non-resident in the 2011-2012 time frame.  Florida accounted for the largest share at 26 percent.

Nationally, the level of international sales is relatively small—in the neighborhood of 4.8 percent of all U.S. home sales measured by transactions. However, for Florida international sales are a major portion of the market. Total residential sales in Florida for the 12 months ended June 2012 were $58 Billion, and sales to foreigners were estimated at $10.7 Billion. Approximately 19 percent of total Florida residential sales (subject to a 5 percent estimating range) are estimated to have been to non-resident foreigners in the 12 months ending June 2012.

Key insights into the Florida real estate market include: 

• Approximately 19-percent of home sales measured in dollar volume in Florida were to non-resident foreigners;
• Nearly all sales were cash, comprising 82 percent of transactions;
• The median price paid by international buyers was $194,700, compared to an overall Florida median price of $125,100 and a U.S. median price of $167,758. Canadians tended to buy on the lower price range while European and Latin American buyers bought at a higher price range;
• Foreign purchasers were reported as viewing the U.S. residential housing market as providing good value, also helped by international dollar exchange rates;
• Canadians lead, with the UK now less important. Brazil and Venezuela have increased as sources of buyers; and
• Condos account for 45-percent of properties, townhouses are 10-percent, and detached single-family are 36-percent.

Cash Sales versus Financing: Approximately 82-percent of realtors who responded to the NAR survey reported all cash sales, compared to 86 percent in 2011. Still, among recent foreign buyers in Florida the use of mortgage financing was much less frequent than the overall national average.

• Overall, 17-percent of foreign buyers reported financing their purchase with a mortgage, while 82-percent paid cash with no mortgage financing.
• In contrast, 87-percent of all home buyers used mortgage financing to purchase their homes, according to NAR’s Profile of Home Buyers and Sellers, 2011. This disparity appears to be due to the differences in credit rating practices between the U.S. and foreign countries and the difficulties in confirming credit worthiness internationally. Foreign buyers typically don’t have credit ratings that are computed on scales similar to U.S. practices, don’t have Social Security numbers, and have credit and asset profiles significantly different from typical U.S. credit profiles. This makes obtaining a mortgage difficult for the foreign buyer.
• 34-percent of foreign buyers in Florida purchased a property to use as a vacation home; approximately 26-percent purchased a home to be used as a rental property.
• Given the U.S. visa and residence limitations on the length of time that foreign buyers may be able to use personally their property, 19-percent of sales were for a dual use—as a vacation home for the buyer’s family and/or friends, and as a rental property at other times. 5-percent of properties were reported purchased as a retirement home.

In sum, the international market for the sale of residential homes to non-resident foreigners is clearly an important part of the total Florida real estate market. A wide diversity of purchasers is attracted to Florida for investment and vacation purposes. The market seems to be specialized on the buyer side, with agents who represent the foreign buyer having language and cultural skills related to the client.  Foreign purchasers are active across a wide breadth of price ranges. The major impediments to additional market growth are financial (as related to mortgage availability and remittance of large sums of money internationally) and travel related (as related to visa requirements as well as perceptions of unwelcoming attitudes by government personnel at U.S. borders).