Foreign buyers are buying fewer homes in California as the pandemic has slowed international travel from China and other parts of Asia, which accounts for at least a third of foreign real estate investment in the state.
That could mean less competition for local buyers who have been squeezed out of the Bay Area’s hot real estate market. But, according to some experts, the cash offers and eye-popping one-ups from wealthy foreign investors could soon return.
Behind Florida, California is the second most popular state for international buyers, according to a new report from the National Association of Realtors. But the Golden State’s share of foreign investment in the US domestic market has fallen from 16% to 11% this year. Meanwhile, this year foreign buyers — both non-residents and recent American transplants — have made the lowest number of home purchases across the country since at least 2009.
Michael Repka, managing director of DeLeon Realty, which caters to Chinese buyers looking for luxury homes in Silicon Valley, said that with lower international demand, the company is focusing on home hunters who have recently moved to the United States and are hungry for new properties amid the pandemic real estate boom.
“We have eliminated almost all of our overseas direct marketing,” Repka said. “It’s no longer profitable because people are reluctant to travel.”
Between April 2021 and March 2022, 38% of foreign buyers in California were from Asia, 15% from Canada, 12% from Latin America and 27% were indeterminate, according to the report.
Foreign buyers buy 1.6% of all homes sold in the United States, according to the report. In California, that number has hovered around 3% in recent years.
Foreign investment in California took off during the late-2000s recession and the mortgage crisis. Home prices fell and investors surged. But over the next decade, as prices recovered and the supply of homes dwindled, foreign buyers began to pull out.
International demand has fallen even further during the pandemic at the same time as a wave of American buyers – many of whom are detached from the office by remote work and stimulated by historically low mortgage rates – have sent house prices up to record levels. Recently, however, prices have started to cool across the state, which housing experts attribute to rising interest rates and lagging demand.
“At least a small part of this price easing may be related to a reduction in the inflow of foreign currency,” Repka said.
The median selling price of existing single-family homes in California fell 4% from May to June to $863,790, but was still up 5% from the same period last year, according to California Association of Realtors data.
Even as house prices begin to stabilize, some experts say wealthy foreign buyers may soon re-enter the market.
“Due to rising interest rates, overall home sales will decline in the United States this year. Foreign buyers, however, are likely to step up their purchases as those bidding in cash will be at risk ‘sheltered from changes in interest rates,’ Lawrence Yun, chief economist of the National Association of Realtors, said in a statement. to the pandemic.”
For the United States as a whole, the number of purchases by foreign buyers is down 7% from the previous year, to just over 98,000 homes. It was the lowest number since the National Association of Realtors began tracking data in 2009. In 2019, the year before the pandemic hit, more than 183,000 homes were sold.
Despite the drop in sales, the value of purchases this year rose 8.5% year-over-year to $59 billion, ending a three-year streak of consecutive declines.
The report tracks buyers who are non-US citizens with permanent residences outside the country, as well as non-citizens who arrived in the United States within the last two years.
Mary Pope-Handy, a real estate agent in South Bay, said she has seen a steady decline in the number of overseas buyers in recent years. One of the main reasons is the exorbitant price of houses in the area, which has made it an undesirable market for international buyers looking to buy investment properties to rent out.
“They may be looking for a place where the rents are higher than the purchase price,” Pope-Handy said, citing Florida as an example. “They kind of hold their breath waiting for a correction.”