The U.S. property market has long been one of the most attractive and lucrative in the world. Global economic and political uncertainty in recent years has led to an influx of international buyers of U.S. real estate assets, with the country’s property market considered a safe haven, as one of the most secure and stable markets in the world.
Investors from the likes of Russia, the Middle East and China have poured capital into the United States, but it seems the buyer jitters have recently kicked in over the summer months. Despite the substantial increase in U.S. foreign property investments in H1 2017 compared to H2 2016, H2 2017 has witnessed a slowdown in growth (according to Covercy’s numbers).
It seems international buyers have shifted their sights from U.S. properties this June.
Why is this happening?
Gidon Jablonka, Covercy CMO says: “Some believe it is related to the summer vacation period, but I believe the explanation for June’s slowdown is the recent residential house price increase.”
According to the S&P CoreLogic Case-Shiller National Index, U.S. prices of single-family homes have risen by 5.8% in June compared to a year earlier. NAR Research Economist Nadia Evangelou reports that 75 million homes rose in value by an average of $17,070 in June 2017. Has this price spike deterred foreign investors from entering the U.S. property market?
According to Covercy’s data, the average international currency transfer in Q2 2017 was 24% higher than in Q1, rising from 34k to 42K per transaction. The first two months of Q3 have already shown a decline, but the dip is probably temporary, with rates likely to bounce back in September. Western European investment transfers, on the other hand, doubled from $25K in Q1 2017 to $50K in Q2, with a Q3 average of around $45K thus far.
Overseas buyers have refrained from investing in U.S. real estate this summer for several reasons. Higher home prices and a stronger U.S. dollar have forced foreign buyers to think twice before making property investments in the country. Meanwhile, factors such as weaker global economic growth, devalued foreign currencies and financial market turbulence have all contributed to a slowdown in property investments, according to Lawrence Yun, NAR Chief Economist.
China has been the second-biggest investor in U.S. real estate over the last few years, with coastal cities in Florida, Texas and California seeing the most residential property purchases by foreigners. High demand as well as a short supply of properties in these locations has led to a recent property price boom in the U.S. Home prices have risen by 5.5% in the 12 months up to April 2017, according to the S&P CoreLogic Case-Shiller Indices.
Nevertheless, it seems Chinese buyers have tightened their budgets by an average of about $22,000 this summer. While soaring house prices are partly to blame, closer supervision of visa applications and stricter capital controls for Chinese citizens has also contributed to the drop in Chinese property investment in the U.S. Mexican and Canadian buyers, on the other hand, have increased their budgets, although there were fewer buyers overall from those demographics, too.
What is expected?
As indicated by the Western European investment transfer increase, the slowdown in property purchases this summer is not a global phenomenon, but rather a problem in the U.S. alone. This downward trend, however, appears to be transitory. August saw a slight correction, with an increase in the number of buyers transferring money to the U.S. for property investments. The figure was 10% lower than that seen in May, but 13% higher than the average for total investors in June and July, putting a positive spin on what has been a negative situation for the U.S. real estate sector this summer.