Ultra-low and declining home prices are a headache for homeowners, but they might also be the key to healing the housing market as foreign investors snap up real estate bargains in the United States.
Internationally oriented sales amounted to $82 billion for the year ending in March, according to the most recent data from the National Association of Realtors, about 8 percent of total U.S. sales and $16 billion more than the same period last year.
Canadians led sales overall, accounting for almost a quarter of foreign home buyers, followed in smaller numbers by China, Mexico, India, and the United Kingdom.
Experts hope the uptick in foreign interest in the U.S. real estate market will help sop up the massive oversupply of housing in markets such as Southern California and Florida, both epicenters of the twin malignancies of overbuilding and foreclosures.
[See a slideshow of most popular cities for foreign real estate investors.]
"Foreign buyers are sort of like a white knight to the new development space because they're paying all cash," says Jonathan Miller, president of New York City-based Miller Samuel Real Estate Appraisers. "It's not a long-term solution, but for the moment it's very beneficial to new development."
In Miami, one of the markets hardest hit by the dual crises of overbuilding and foreclosures, inventory fell more than 6 percent between the second and third quarter of 2011, driven largely by foreign investment, experts say.
"The major reason the inventory in South Florida has been trading and at ever-increasing rates is because of the strength of the Latin American buyers," says Vanessa Grout, president and CEO of Douglas Elliman Florida LLC. "The inventory is dissipating and we're showing incremental improvements."
The extreme volatility of financial markets and uncertainty about the economic policy direction of major players such as the United States, Europe, and China have also driven foreign investors into historical safe havens—U.S. treasuries and more recently, real estate.
[See why mortgage rates are rising.]
"Marquee locations in the U.S. stand to benefit from the concern globally about financial stability," Miller says. "[Low home prices] make it more attractive [to invest in real estate] and it helps us slowly unwind the shadow inventory."
The declining value of U.S. currency has been an additional boon to buyers from abroad. Save for a temporary spike in September, most of 2011 has been characterized by a falling dollar, which means foreigners can buy more goods and services—in this case real estate—for the same amount of their native currency.
The influence of foreign investors and their potential to help the housing market hasn't been lost on legislators. To help fuel demand, Democratic Sen. Charles Schumer of New York and Republican Sen. Mike Lee of Utah have co-sponsored a bill that would grant visas to any non-U.S. citizen who spends at least $500,000 on residential real estate in the United States.
"This is a way to create more demand without costing the federal government a nickel," Schumer told the Wall Street Journal.
[See why falling inventories may bring limited relief to the housing market.]
Although experts agree the plan could boost markets that tend to attract foreign buyers—think New York, Boston, Miami, California—others worry that government red tape might get in the way of actually implementing and seeing the benefits of the plan.
"They just need to make sure approval can keep up with demand," Grout says, adding that foreign buyers already face a multitude of challenges when trying to buy in the United States.
mhandley@usnews.com
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