Challenging conditions in the U.S. housing market, along with tighter currency controls by the Chinese government, caused a stunning drop in foreign demand for American homes.
The dollar volume of homes purchased by foreign buyers from April 2018 through March 2019 dropped 36% from the previous year, according to the National Association of Realtors. The decline was due to a drop in the number and average price of purchases. Foreigners bought 183,100 properties with a total value of about $77.9 billion, down from 266,800 valued at $121 billion in the previous period.
They paid a median price of $280,600, which is higher than the median for all existing homebuyers ($259,600), but it was down from $290,400 the previous year.
"A confluence of many factors — slower economic growth abroad, tighter capital controls in China, a stronger U.S. dollar and a low inventory of homes for sale — contributed to the pullback of foreign buyers," said Lawrence Yun, NAR's chief economist. "However, the magnitude of the decline is quite striking, implying less confidence in owning a property in the U.S."
The Chinese were the leading buyers for the seventh consecutive year, purchasing an estimated $13.4 billion worth of residential property. Yet that was a 56% decline from the previous 12 months and comparatively the biggest percentage drop of all foreign buyers. Chinese economic growth slowed to 6.3% in 2019 compared with 6.9% in 2017, when the previous buyer survey began. The Chinese government also tightened its grip on the outflow of cash to purchase foreign property.
The Chinese may also be souring on U.S. real estate due to the current political climate. Anecdotally, real estate agents in California have seen a pullback in Chinese buyer demand. Southern California had been particularly popular with Chinese parents hoping to send their children to American colleges.
In the first quarter of this year, Chinese buyer inquiries for U.S. properties on Juwai.com, a Chinese real estate site, were down 27.5% from a year ago. Inquiries have been down in four of the last five quarters.
"We call it the Trump effect. It's a combination of anti-Chinese political rhetoric, a clampdown on visa processing, and of course tariffs," Carrie Law, CEO and director of Juwai.com, said in a recent interview. "The Trump effect is undercutting some of the primary drivers of Chinese demand for U.S. property, including buying homes for students who are studying in the U.S. and the country's reputation as a safe investment."
Chinese buyers were followed by Canadians ($8 billion), Asian Indians ($6.9 billion), U.K. buyers ($3.8 billion) and Mexican buyers ($2.3 billion). The Chinese purchased approximately the same number of homes as Canadians, but the Chinese bought pricier homes and therefore beat the Canadians in dollar volume. The Chinese first pulled past the Canadians in volume in 2015, surged strongly in 2018, but then fell back dramatically in the past year.
Foreign buyers include those living in the U.S. and overseas, but the majority (60%) were recent immigrants and foreigners who live in the U.S. for work, school or other reasons.
While the Realtors point to the steep runup in home prices over the past several years, as well as the shortage of existing homes for sale, foreign buyers have long been big players in the newly built housing market, where homes come at a price premium.
There is a large supply of move-up range new homes for sale, especially in areas where foreign buyers have shown the most interest, such as the Inland Empire of Southern California as well as Texas and Florida. It may just be that foreigners don't see the U.S. housing market as the most lucrative investment anymore. Home values are already gaining less than they were a year ago, and in some major markets values are falling.
Foreign investors continued to flock to Florida, according to the NAR report. One in 5 foreign buyers purchased their properties in the state. About 42% of Canadian buyers, often referred to as snow birds, purchased in Florida.
"Many Canadians and other foreigners found Florida so enticing because of its lenient tax laws," said Yun. "Additionally, many Florida metro areas have an inventory of cheaper properties, relatively speaking — a combination which makes the state a very popular destination."
Behind Florida was California, which garnered 12% of international purchases. About a third of Chinese buyers purchased property in California, although that figure was down from the previous year. The next most popular destination for international buyers was Texas, especially for Indian and Mexican buyers. Arizona and New Jersey rounded out the top five, with North Carolina, Illinois, New York and Georgia not far behind.
— CNBC producer Lisa Rizzolo contributed to this report.