The stream of foreign buyers that seemed to be filling the empty reservoirs of the US property market has dried up, according to Real Estate Economy Watch. Just a few short weeks ago, in August of this year, the foreign buyer was hailed as the saviour of the flaccid US property market. Prices rose as incomes stagnated, but the property sector was able to actually begin giving buoyancy to the economy as a whole, by employing realtors and construction industry workers as the sector expanded, apparently in a vacuum.
In fact, the missing demand to fuel this expansion was coming from overseas. US property is desirable as habitation as well as for investment purposes and prices and the dollar have fallen together. As a result, Europeans, Asians and Latin Americans were inflating the US market as recently as June of this year. A key feature of this phenomenon was the number of Asian buyers, particularly Chinese, as a newly-confident Chinese upper middle class rides the wave of Chinese economic expansion.
However, the stream of foreign buyers appears to have run dry. According to real estate website Trulia, ‘investors want to buy when prices are at their bottom, but they’ll start to lose interest when prices rise 15%.’ Even in the key areas of focus for foreign investment, such as Florida, interest from foreign buyers has declined a bitter blow for the sunshine state that has seen interest from buyers decline over the last six years. Foreign buyers have reduced in number over the last year, according to the National Association of Realtors: sales to foreigners went down 6% between June 2011 and June 2012. That’s bad news for the rest of the US market, since Florida represents a significant proportion of all foreign real estate investment: 26% of all foreign buyers so far this year.
But it’s particularly bad news for Floridian sellers. The state relies heavily on tourism for its economic well-being, and foreigners were paying well over the odds and in cash. Some 62% of all sales to foreigners were paid for in cash, and foreign buyers paid over the median price by a substantial margin. The average US home sells for $167k, and in Florida that figure is more like $125k. But foreign buyers of Florida properties were willing to pay an average of $195k – until they stopped.
Some experts pin the blame on the decline of the Euro against the dollar, part of a readjustment process as the effects of the financial crisis make themselves felt across the Eurozone after spreading there from the US. However, other forces may be at work. Chinese investors may prefer to buy closer to home, in Malaysia, where there is a large Chinese population, and in Hong Kong, where 40% of recent luxury home sales were to mainland Chinese.
Alongside the canniness of the Chinese investors whose cash made up 11% of the foreign-buyer market are the Canadian investors whose domestic market is cooling right now, and the US market in homes needs to be viewed within the economy as a whole. There has been a slight jump in mortgage forclosures (though still fewer than a year ago) and unemployment has risen slightly over a similar period. The rest of the US economy, in short, is suffering from a general failure to rise, and the leavening of a new Federal stimulus packaging is doing more for Hong Kong property prices than US wages and employment figures.
A deflating housing market could leave the US with nothing better to look forward to than Standard & Poor’s appropriately gloomy predictions of 2.2% economic growth in 2012 and 1.8% in 2013.