Will Foreign Real Estate Buyers Push Out Domestic Ones?

Foreigners are buying more real estate in the U.S., according to the National Association of Realtors.

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Total sales to international clients are estimated at $82.5 Billion in the 12 months ending March 2012.

A Russian billionaire buys an $88 billion New York City condo for his daughter. Realtors report working with more Brazilian clients in Miami. A Vietnamese investor scoops up an entire town in Wyoming.

As property values have fallen precipitously over the past several years thanks to a catastrophic housing bust, foreign buyers are increasingly eyeing U.S. real estate and snapping up properties in the nation's hottest markets.

While that might seem like financial suicide to most Americans who have lived through one of the nation's worst housing crises, the picture looks a whole lot different to international buyers, many of whom hail from rising economic powerhouses abroad. As their home countries have flourished, so too has the affluence among some residents.

"The world is getting a lot richer," says Jed Smith, managing director of quantitative research at the National Association of Realtors. "The market has picked up in the last couple of years and that's being driven by the relative affluence of a number of countries who are doing pretty well."

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With the extra competition now coming from abroad, will domestic buyers be pushed out or priced out by foreign buyers?

At this point it's not likely, says Luis Vergara, director at financial services firm Mission Capital Advisors. Although he's seen an uptick in sales to foreign buyers in his home market of New York City, overall international buyers still make up a relatively small percentage of total sales.

Foreign nationals spent about $82.5 billion in the 12-month period ending in March 2012—up about 24 percent from the $66 billion they spent the year before—but only 9 percent of all residential real estate sales come from international buyers, according to a recent report from the National Association of Realtors.

"Even though sales [to foreign buyers] have increased year over year, it's still a relatively small segment at the national level," Vergara says. "If anything, international buyers are supporting real estate values in some [metro areas] and it should be seen as a boon that they're buying."

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Furthermore, domestic buyers have much greater challenges to face than an influx of investment money from abroad.

"What's pushing out [domestic] buyers is poor economic and job growth, and stringent lending," Vergara says, adding that in many cases average buyers aren't competing with foreign buyers' big bucks anyway. "Most of these [buyers] are picking up high-end properties."

At the end of the day, foreign buyers view U.S. real estate as a relatively safe place to invest their money, and Vergara likens it to the continued investment in U.S. treasuries, currently yielding near record-low returns.

"International buyers view the United States as a safe haven for investment," he adds. "The U.S. has well-defined, secure property rights, and from the international investor's perspective, real estate in the U.S. is desirable, profitable, and a secure investment."

Meg Handley is a business reporter for U.S. News & World Report. You can reach her at mhandley@usnews.com and follow her on Twitter at @mmhandley.