Foreigners are far less eager to purchase American real estate, and the current political climate may prevent these sales from rebounding.
Foreign buyers made $77.9 billion in residential purchases between April 2018 and March 2019, which represents a 36% drop from the previous year, according to data from the National Association of Realtors. The number of purchases also decreased by 31% to 183,100 purchases.
Once again, the Chinese were the biggest foreign buyers of American homes. Chinese buyers accounted for $13.4 billion in real-estate purchases, or roughly 17% of all sales to foreign buyers. Canadian buyers were the second largest amount of real-estate deals in dollar volume at $8 billion.
Despite representing nearly a fifth of all real-estate sales to foreign buyers, Chinese demand shrank dramatically from the previous year. In 2018, Chinese buyers accounted for $30.4 billion in home sales.
The ongoing trade dispute between the Trump administration and China could cause the situation to become even more dire, experts warn. Long before the current trade war, the Chinese government had been creating hurdles for its citizens who wanted to invest abroad.
The country started restricting outbound investments in 2016, allowing residents to take only the equivalent of $50,000 out of the country, as a means of propping up the country’s currency. This not only made it more difficult to purchase real estate in America, but prompted some Chinese investors to sell their U.S. assets.
If the two countries don’t reach a settlement soon, the outlook for real estate may worsen. “The Chinese government could place stricter capital controls about taking money out of China and buying in America,” Lawrence Yun, chief economist at the National Association of Realtors, told MarketWatch.
The current political climate is just one factor affecting foreign buyers’ appetite for U.S. real-estate. In China, authorities have placed tighter regulations on commercial bank lending, which has limited economic growth.
In the U.S., the supply of homes for sale remains very tight across many housing markets, particularly along the West Coast. As a result, home prices remain at historic highs in most parts of the country — when coupled with the relative strength of the dollar, buying an American home is a costlier proposition for foreign buyers.
If the foreign pullback from the U.S. real-estate market continues, American home sellers could suffer. Chinese buyers play a major role in housing markets along the West Coast and in college towns, Yun said. The lack of interest from foreign buyers, who typically enter competitive all-cash offers, could force sellers to make more concessions or cut their list prices in the months to come.