Less International Interest in U.S. Real Estate: 6 Things to Know

Amid the past year's economic panic, foreigners became less inclined to put their cash into the rickety U.S. housing market, according to a report from the National Association of Realtors. Just 23 percent of real estate agents surveyed served one or more international clients in the 12-month period that ended in May 2009, down from 26 percent in the previous year's study and 32 percent in 2007's. "People have pulled back on their real estate investments in this downturning market," says Jack McCabe, who heads McCabe Research & Consulting. "It's not just a U.S. phenomenon—it's a global phenomenon."

Here are six things to know about the development:

1. Global recession: The economic downturn isn't confined to the United States. "It is not just a U.S. recession, it is a global recession," McCabe says. "[Foreign] stock markets have also seen a precipitous fall. So just like their U.S. neighbor, [overseas investors] have lost money on real estate and on other investments in their own home countries." Those losses curb international investors' willingness and ability to buy up additional assets, including overseas real estate. Meanwhile, declining property values can make prospective foreign buyers uneasy about investments in U.S. property markets, McCabe says.

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2. Cheaper homes: The sales price of homes purchased by international buyers declined significantly over the past year. In the 2009 report, the median price of homes purchased by foreign buyers was $247,100. That's significantly higher than the $178,400 annualized national median price for U.S. existing homes as of July, but it's down sharply from last year's survey, when the median price of homes purchased by foreign buyers was $297,400.

[See Home Buyers Are Losing Bargaining Power: 5 Things to Know.]

3. Cash purchases: Another interesting finding in the report was that nearly half—46 percent—of all foreign buyers paid cash for their U.S. real estate investments. (By comparison, 93 percent of all 2008 U.S. home buyers obtained home loans.) The tight mortgage market is one factor behind this development, McCabe says. "There has been a high rate of foreclosures in mortgages granted to foreign nationals, especially those that were adjustable-rate" mortgages, he says. "That has made it very difficult for [foreign nationals] to acquire any financing in the United States." McCabe adds that the financial traditions of certain nations make all-cash real estate purchases less radical than they might appear to Americans. "In most of their home countries, you have to put 40 or 50 percent or more down to buy property," he says. "So a large down payment or paying cash for property . . . is something that [many foreign nationals] have grown up with."

4. Top buyers: Canadians led the pack of international buyers in the most recent report, making up 18 percent of all foreign real estate purchases in the United States. They were followed by citizens of the United Kingdom (11 percent), Mexico (9.8 percent), India (8.5 percent), and China (5.4 percent). "The top five countries of origin for foreign buyers has been consistent over the last three years," NAR said in the report.

5. Leading destination states: Although all 50 states had interest from international real estate investors in the past year, four states—Arizona, California, Florida, and Texas—attracted the majority of buyers. Florida ranked first, with 23 percent of total foreign purchases, followed by California (13 percent), Texas (11 percent), and Arizona (7 percent). "These four states were also the top destinations for foreign buyers in the 2007 and 2008 surveys, with Florida having been the top destination for foreign buyers in both previous years, followed by California," NAR said in the report.

6. Types of properties: Single-family homes were by far the most popular types of property for foreign real estate buyers, representing nearly 70 percent of purchases. Condos made up another 18 percent. "The prime purpose for purchasing a property in the U.S. is to use it for a vacation home, cited by 33.9 percent of respondents," NAR said in its news release.