After we reported the rise in home prices and rents causing the decrease in housing affordability, housing costs are finally getting the attention that it deserves as an important topic among voters in the upcoming elections. It is a key issue among voters as shelter costs make up a majority of the Consumer Price Index (CPI) which gauges inflation. Rising costs, high mortgage rates, decrease in new construction, and increase in immigration resulted in home inventory (supply) dropping at a faster rate than those still in the market to buy or rent a home (demand). The lack of supply and higher demand caused home prices and rents to skyrocket. As if that wasn’t enough, you can now add foreign money to the list of influences on housing affordability. Many believe that it is limited to luxury properties in metro cities, but data shows that it affects our suburban areas, further stifling our US housing market and affordability.
Any non-U.S. citizen can buy a home in the United States without legal restrictions. There are also no limits to the type of property that a foreigner can buy.2 The National Association of Realtors (NAR) reported in July 2024 that during April 2023 – March 2024, $42 billion dollar volume of foreign buyers made residential purchases equaling 2% of existing home sales). The major foreign buyers are Canada, China, Mexico, India, and Colombia. 1
Foreign buyers predominantly make all-cash purchases because of “…tight competition among the limited homes on the market, differing currency exchange rates, difficulty in obtaining mortgage financing, and other reasons.” Although foreigners can obtain a mortgage with a few more requirements, 50% of foreign buyers on average paid all-cash compared to 28% of all existing home buyers. When you dissect the foreign buyers by country, Canada and China make up the majority of all-cash buyers at 69% and 68%, followed by Mexico, Colombia, and India at 44%, 42%, and 27%.
Foreign buyer median purchase price was higher than all US existing homes sold at $475,000 versus $392,600. The challenges with financing and relying on all-cash purchases resulted in these higher median prices. The foreign buyers tend to increase purchasing power and offers using all-cash to secure a home. This behavior makes it more difficult for home buyers to compete by driving up median home prices and reducing housing affordability across the board for all.1
The type of properties purchased were predominantly detached single family homes or townhomes at 76% of foreign buyers with the majority purchased in suburban areas. This NAR data supports that foreign home purchases are not isolated to only luxury properties in major cities, but that it affects common suburban households. 1
Canadians tend to buy in resort areas, but Chinese, Mexicans, Indians, and Colombians buy in suburban areas. Foreign buyers in suburban areas make up 50% of China, 45% of Mexico, 76% of India, and 61% of Colombia home purchases.
The influx of all-cash home purchases by foreign buyers further adds to the low housing market affordability that stifles the U.S. economy. The decrease in housing affordability is primarily influenced by the lock-in effect of home sellers reluctant to sell their home to give up existing low mortgage rates, the decrease in new construction, and the flooding of immigrant households (legal and illegal) who take affordable housing away from citizens. However, it cannot be ignored that the influx of all-cash purchases plays a role in the overall lack of supply and increase in home prices. This is another layer that the federal government needs to evaluate to make housing more accessible and affordable to U.S. citizens who are desperate to buy a home to follow the American Dream and build wealth for the future.
October 13, 2024
By Sophia Georges
Copyright 2024 - Realsophy Real Estate, Sophia Georges
