Foreigners Are Buying Fewer US Homes

Foreign buyers purchased the lowest number of homes in the US since 2009 as higher interest rates and lower inventory curbed interest, according to a report from the National Association of Realtors (NAR).

Foreign buyers purchased 84,600 properties, down 14.2% from the prior year and the fewest number of homes bought since 2009, when NAR began tracking this data, it said on August 1. They spent $53.3 billion on US existing homes from April 2022 through March 2023, slipping 9.6% from the previous 12-month period,

"Sharply lower housing inventory in the US and higher borrowing costs across the world have dented international buyers for two straight years," NAR Chief Economist Lawrence Yun said in the report. Overall, US existing-home sales totaled 5.03 million in 2022, down 17.8% from 2021, NAR said.

The average US 30-year mortgage rate jumped to a nine-month peak on August 9 and hit the second-highest rate since 2001, as interest rates reacted sharply to a downgrading of US government debt, according to the Mortgage Bankers Association (MBA).

Fitch Ratings’ Fitch cut on August 2 the US’s sovereign credit grade one level from AAA to AA+ as confidence eroded after repeated debt-limit political standoffs and last-minute resolutions and further fiscal deterioration given tax cuts and economic shocks.

Mortgage rates

Mortgage rates increased for all loan types in the MBA survey, with the 30-year fixed mortgage rate increasing to 7.09%, the highest level since November 2022,bJoel Kan, MBA’s Vice President and Deputy Chief Economist, said on August 9. Additionally, the rate for FHA mortgages increased to 7.02%, the highest rate since 2002.

“Not surprisingly, mortgage applications continued to decline given these higher rates, with overall application counts falling for the third consecutive week, as both purchase and refinance activity declined,” Kan said. “The purchase index fell for the fourth consecutive week, as homebuyers continue to struggle with low for-sale inventory and elevated mortgage rates.”

This point was reiterated by Morgan Stanley’s Co-Head of US Securities Products Research, Jim Egan.

“Mortgage rates go up, affordability deteriorates, but not for current homeowners,” Egan said on August 7 during a podcast with Michelle Weaver from Morgan Stanley’s US Equity Strategy Team. “They become very locked in at that lower rate and disincentivized to really list their home for sale, and that's why we've seen existing listings fall to 40 year lows. We say 40 year lows because that's just as far back as the data goes, this is the lowest we've seen that. If they're not listing their homes for sale, that means that they're also not buying homes on the follow, and that really brings sales volumes down.”

2024 Forecast

Morgan Stanley forecasted that housing prices will drop in 2024.

"We forecast house prices in 2023 to finish the year flat vs. 2022 before falling 2% in 2024 as affordability continues to adjust slowly back to long-run averages and inventories begin a slow climb off multi-decade lows," the company said.

Home prices recorded four consecutive monthly increases through May, climbing 0.7% from the previous month, the S&P CoreLogic Case-Shiller Index showed, amid constrained inventory. At the same time, the index also showed that home prices declined 0.5% year over year.

Holding Visas

Foreign buyers aren’t immune to the US housing market’s conditions. Those who lived abroad purchased $29.9 billion worth of existing homes, up 20% from the 12 months prior and accounting for 56% of the dollar volume. International buyers accounted for 2.3% of the $2.3 trillion in existing-home sales during that period, NAR said in the report.

Foreign buyers who resided in the US as recent immigrants or who were holding visas that allowed them to live in the US purchased $23.4 billion worth of US existing homes, a 31.4% decrease from the prior year and representing 44% of the dollar volume of purchases, according to NAR.

The average ($639,900) and median ($396,400) existing-home sales prices among international buyers were the highest ever recorded by NAR – and 7% and 8.3% higher, respectively, than the previous year. The increase in prices for foreign buyers reflects the increase in US home prices, as the median sales price for all US existing homes was $384,200, it said.

Half of foreign buyers purchased their property for use as a vacation home, rental property, or both – up from 44% the previous year. Almost three out of five international buyers (59%) purchased detached, single-family homes.

Florida Top Destination

For the 15th consecutive year, Florida remained the top destination for foreign buyers, accounting for 23% of all international purchases, NAR said. More than 1,000 people on average moved to the sunshine state every day last year, according to the 2022 Lay of the Land market report.

California and Texas tied for second (12% each), followed by North Carolina, Arizona and Illinois (4% each). "Florida, Texas and Arizona continue to attract foreign buyers despite the hot weather conditions during the summer and the significant spike in home prices that began a few years ago," Yun said.

China and Canada remained first and second in US residential sales dollar volume at $13.6 billion and $6.6 billion, respectively, continuing a trend going back to 2013. Mexico ($4.2 billion), India ($3.4 billion) and Colombia ($0.9 billion) rounded out the top five.

"Home purchases from Chinese buyers increased after China relaxed the world's strictest pandemic lockdown policy, while buyers from India were helped by the country's strong GDP growth," Yun added. "A stronger Mexican peso against the US dollar likely contributed to the rise in sales from Mexican buyers."