By Robert Jones
With real estate prices in most U.S. cities heading south, many would-be sellers are looking south for their salvation. They’re also looking north, east, and west any place, where there might be buyers with wads of currency that isn’t colored green.
The weak dollar may be emboldening foreigners to buy in this country, despite the bad real estate news that has found its way into every international news source.
Foreign buyers have always played a large, but quiet, role in U.S. real estate, snapping up properties as second homes, investments, or hedges against political instability in their own countries. But now that housing values are dropping by double-digit annual rates in some cities, foreign buyers are increasingly viewed as a sort of safety net preventing prices from going into complete free-fall.
Though there are no reliable national figures for the number of foreign buyers in the U.S., there’s plenty of anecdotal evidence to show that they are keeping the real estate industry afloat in some markets. At CityCenter, the huge new Las Vegas development from MGM Mirage, developers report that 10 percent of all contracts are being inked by non-Americans.
One research firm estimates that foreigners have accounted for as much as one-third of all condo sales in Manhattan over the past 18 months. Realtors in Phoenix say Canadians are shoring up the market for pricey golf course homes, while downtown Los Angeles is finally experiencing a housing renaissance fueled by buyers from Korea.
Blessed by year-round sunshine, Florida has direct international airline routes, and at least from a buyer’s standpoint a glut of new construction. Florida accounts for more than one-quarter of all foreign home-buying transactions in the U.S., according to a 2007 study by the National Association of Realtors. More than seven percent of all residential real estate transactions in the Sunshine State involve a foreign buyer.
Analysts say that despite thousands of empty condos on the market, prices in Miami have held up better than some expected as foreigners stepped in to take up the slack. The same holds true for Orlando, where more than half the buyers in some new condo buildings come from overseas, especially the U.K.
“It’s a perfect day for foreign buyers,” says Tony Macaluso, a Realtor with Portside Properties in Palm Beach Gardens, Florida, and International Operations Chairman for the National Association of Realtors. “Selection is larger than it has been in several years, prices have softened in many areas, and foreign currencies are increasing against our dollar.”
Ironically, the weak dollar may turn out to give many real estate markets a lift in the U.S. Expecting a rebound by the greenback later this year, European hedge funds are actively looking for U.S. properties, hoping to lock in profits from both currency fluctuations and a recovery in real estate values. On a less sophisticated level, the same thinking affects the buying decisions of individuals.
“When Europeans come here, they find our prices very charitable,” says Macaluso, noting that the dollar reached an all-time low against the euro last week, while the British pound is trading at two-for-one. “When the Brits come here and see a $400,000 house, it’s a half-price sale for them.”
Because their currencies are worth more, foreign buyers are able to make larger down payments, rendering them immune to the credit crunch that has crippled many would-be American buyers. In fact, the NAR study found that nearly 30% of foreign purchasers paid all cash for their homes in this country.
In cities popular with foreign buyers, those cash deals might even serve to soften the blow of the mortgage mess that has driven foreclosures to record levels.