Wednesday, July 14, 2010
International home buyers are increasingly attracted to property in the U.S., according to the National Association of REALTORS®’ 2010 Profile of International Home Buying Activity. Several factors, including the foreign trade currency rate of the dollar, the value and desirability of U.S. real estate, and the emerging economic recovery, continue to drive international interest in owning a home.
A survey which covered the period between April 1, 2009, and March 31, 2010, revealed that during that time foreign buyers, including those with residency outside the U.S. as well as recent immigrants and temporary visa holders, are estimated to have purchased $66 billion of U.S. residential property, or 7 percent of the residential market.
International buyers came from 53 different countries around the world. The top four countries were Canada, Mexico, the U.K. and China/Hong Kong. With 23 percent of international buyers coming from Canada, the country has remained the largest buying group in the past three years. Foreign buyers from Mexico have been steadily increasing. In 2010 Mexico replaced the U.K. as the second largest buying group with 10 percent of buyers. Buyers from the U.K. buyers decreased from 10.5 percent in 2009 to nine percent in 2010. Eight percent of recent buyers came from China/Hong Kong.
Two factors important to international clients when purchasing property in the U.S. are proximity to their home country and the convenience of air transportation. Florida typically attracts European, Canadian and South American buyers while the East Coast draws Europeans. The West Coast brings Asian buyers and the Southwest attracts Mexicans.
International buyers were reported in 39 states in 2010, but a slight majority of the total buyers are concentrated in Florida, California, Arizona and Texas. These four states account for 53 percent of purchases and have remained the top destinations for the past three years, with Florida and California remaining the top two destinations.
The median price paid by international buyers for a home in the U.S. was $219,400, a decrease from 2009’s median price of $247,100. However, the median price paid by foreign buyers was significantly higher than the overall median market price, which was $172,500 in 2009. On average, foreign buyers tend to purchase closer to the upper end of the market; 16 percent of the total international purchases were for homes priced at more than $500,000. According to REALTORS®, this was because international buyers are typically looking for a second home.
A majority of international buyers, 66 percent, purchased single-family detached homes. However, more international buyers purchased a condo than did their U.S. counterparts, at 23 percent and 7 percent, respectively. Only 44 percent of international buyers used a mortgage to pay for their home, compared to 92 percent of domestic buyers. Fifty-five percent of foreign buyers paid all cash. REALTORS® reported that a majority of international buyers use all cash because of the difficulty in establishing international credit in the U.S. Over one-third, 34 percent, of potential foreign buyers was unable to complete transactions because of financing problems in the U.S.
NAR President Vicki Cox Golder,says “The U.S. continues to be a top destination for international buyers from all over the world. Foreign buyers understand the value of owning a home in this country and can rely on REALTORS® to help guide them through the complex process of buying property in the U.S. With expertise, knowledge and experience, REALTORS® have a global perspective.”
103: That’s the number of months it would take to sell off all the foreclosed homes in banks’ possession, plus all the homes likely to end up there over the next couple years, at the current rate of sales.
How much should we worry about a new leg down in the housing market? If the number of foreclosed homes piling up at banks is any indication, there’s ample reason for concern.
As of March, banks had an inventory of about 1.1 million foreclosed homes, up 20% from a year earlier, according to estimates from LPS Applied Analytics. Another 4.8 million mortgage holders were at least 60 days behind on their payments or in the foreclosure process, meaning their homes were well on their way to the inventory pile. That “shadow inventory” was up 30% from a year earlier.
Based on the rate at which banks have been selling those foreclosed homes over the past few months, all that inventory, real and shadow, would take 103 months to unload. That’s nearly nine years. Of course, banks could pick up the pace of sales, but the added supply of distressed homes would weigh heavily on prices — and thus boost their losses.
The government is understandably worried about the situation, and its Home Affordable Modification Program has made an impact by helping people stay in their homes and avoid foreclosure. As people who enter the program catch up on their payments, the number of homeowners 60 or more days delinquent has fallen 9% over the past two months.
Now, though, the effect of modifications could be on the wane. According to Goldman Sachs, HAMP started less than 80,000 trial modifications in March, less than half the number in the peak month of October 2009. At the same time, a growing number of modifications are being canceled as borrowers prove unable to pay. By Goldman’s count, about 68,000 were canceled in March.
All this means that little can stop banks’ inventory of distressed homes from growing. Too many people owe too much more on their homes than they can afford. For the housing market, that could mean a long-lasting hangover.