United States – international buyers, the 100 billion dollars market

The National Associations of Realtor (NAR) creates each year a full study on foreign buyers in the USA. This is very precious to understand who they are, what they buy, and more importantly what the trends are.

 

Five years ago, this market was already a 66 billion dollar market. In other terms, in 2011 foreign buyers had bought 210,797 properties at an average price of $315,000.

It kept growing in the past years, and now it is a 102 billion dollar market, which is a strong +55% increase over 2011. Yet looking at the figures, the number of transactions is only 214,885, which is extremely similar to the 210,797 transactions that were observed in 2011.

Where is the growth (in dollar volume) coming from, if the number of transactions is similar ?

 

It’s not the number of transactions that is increasing, but the average purchase price that is skyrocketting. The average purchase price of foreign buyers is now at $477,462 in 2016, up 52% (!) compared to 2011.

 

The graph below clearly points out which factor is responsible for the growth of this market :

  • In green the number of properties purchased by foreign buyers : clearly, this is not the factor of evolution. It was at 210K transactions in 2011 and peaked at 232K in 2014.
  • In red, the average purchase price of foreign buyers : this is what drives the growth. It went from $315K to $477K, peaking at $500K last year
  • In black : the result: significant market growth ! From a 66 billion dollar market to a market that weighted over 100 billion dollars for two consecutive years now.

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When I first read that, i thought that it might be due to a general increase in transactions prices in the USA. But it’s clearly not the good explanation.

Indeed, the average price paid by a local buyer has only increased from $217,5K in 2011 to $266,7K, while the average price paid by a foreigner went from $311K up to $477,5K as you can see below in the graph that compares the price paid by foreign buyers to the existing home sales average purchase prices :

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One natural question that comes at this point is :

Why are foreign buyers paying much more than they used to ?

After a closer look at the figures, we can say that a large part of this increase is due to the nationality of foreign buyers.

To over-simplify, there are less and less Canadians buying, whose average purchase price is relatively low, at $332K, and more and more Chinese buyers whose average purchase price is $936K.

Also, the Chinese average purchase price was $370K in 2011 and is now $936K, which is nothing less than a +153% increase in 5 years. I would love to discuss why Chinese buyers spend more today than they used to, but that could deserve a full study by itself. To sum it up in a few words, we can say that more than 150,000 Chinese have bought properties in the USA in the last 5 years (according to those studies by the NAR). This means that the market is now more mature, the systems and processes to buy in the USA as a Chinese citizen are more and more known by the Chinese. From April to July I spent a lot of time in Shanghai and could observe at least 10 strong sales channels allowing Chinese to buy overseas, with agents specializing in this growing niche but also leading companies such as PingAn (insurance company employing over 83,000 people) which now help their employees to buy properties overseas.

 

Yet the Chinese are not the only ones who allocate more resources and a higher budget when transacting in the USA. Indeed the British are also strongly increasing their budget when buying in the USA, from $438K in 2011 to $598K in 2016 which is also significant as you can read below.

 

Let’s hope that this trend will continue, which is highly likely considered that international transactions are more and more common in the real estate industry, with more and more people turning to real estate markets internationally to diversify their assets.

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Thanks for reading my latest article 

Contact : reiser@listglobally.com