In the United States, real estate is one of the largest sources of value in our economy. To complicate this system of investments, the United States is an open economy where both domestic and foreign entities can purchase real estate for personal use or investment. So what impact does a foreign player have on a local market? Which countries are investing in our real estate and why? Let’s discuss those questions and find out how they alter our real estate market.
By the Numbers
The United States has long been a safe, lucrative investment. Aside from a few hiccups, real estate generally sees significant appreciation. As a bonus, property is often less expensive than other large cities in similar markets like the UK and Canada.
The three cities which see the most foreign investment are San Francisco, CA, Miami, FL, and Los Angeles, CA. San Francisco has limited real estate and a significant number of large corporations employing thousands like Facebook and Google, increasing demand for real estate. As a result, foreign investors flocked to the area, driving up housing and apartment rental costs.
The same is true for Miami where the median property value is over $500,000 and foreign transactions amounted to roughly 20% of Florida’s home and apartment sales. In 2017, Los Angeles was the second-most foreign-invested city in the world.
A Tale of Two Markets, Then and Now
In July of 2017, the foreign investments market surged. From April 2016 to March 2017, foreign buyers and immigrants purchased over $150 billion in residential property alone. Those numbers came primarily from Florida, California, and Texas. China was the top purchaser while Canada more than doubled their investments. Property values soared as demand increased and supply dwindled. The same held in many foreign markets. As a result, housing prices climbed to the detriment of home-seekers. The trend slowed but continued in 2018 as property sales from foreign buyers totaled $121 billion.
Fast forward to 2019 and the picture begins to change. The housing market hits a brick wall for foreign investors. Purchases sunk 36% from April 2018 to March 2019, according to the National Association of Realtors. The number of properties dropped to 183,100 from 266,800, and the value decreased from $121 billion to $77.9 billion. Fewer homes were on the market, but political and economic uncertainty played a factor as well.
Even though China was still the leading foreign buyer of United States properties, their massive 56% decline in purchasing value led the way for the investment decrease. A tightening of visa processing and increased tariffs played a large role in the pullout by Chinese investors. Chinese economic growth also slowed during the timeframe. The lack of confidence in foreign investment has made room for an increased internal purchasing power alongside a stronger US dollar.