Economics of the International Market

by Jed Smith, Managing Director, Quantitative Research

The economics of home sales to international buyers— that is, foreigners who purchase residential properties in the U.S. but are not permanent residents—are somewhat different from those of domestic sales. Non-residents tend to purchase homes for vacation and investment purposes, tend to pay a higher price, and tend to concentrate their sales in specific geographic areas. Based on data from NAR’s Existing-Home Sales database, a total of 5.4 million homes were sold during the 12 months ending in May 2010, with an estimated total value of approximately $900 Billion* Based on survey information the estimate of sales to international clients is approximately $42 Billion, 4.6 percent of the total existing home sales market dollar volume, or 197,000 homes.**

Market Overview

In the 2009/10 time frame 28 percent of REALTORS® reported having at least one international client, with 18 percent reporting a completed transaction:

• The market was concentrated in a few areas: Although there were international buyers in 39 states, 53 percent of the purchases were concentrated in four states—Florida, California, Arizona, and Texas.
• Canada (23%), Mexico (10%), the U.K. (9%), and China (8%) accounted for 50 percent of home purchases
• The median home sales price was $213,000 over the 2009/10 time frame; in comparison, median prices paid by domestic buyers fluctuated over that time period but were consistently below $182,000.
• The reasons cited for a foreign-buyer’s home purchase included vacation, investment, and asset diversification.
• International clients paid cash in 55 percent of the sales. International clients were much less likely to obtain mortgages than were domestic clients. The transfer of assets and the establishment of credit are significantly more difficult between countries than within the U.S.
• REALTORS® on the buyer side of a transaction involving a foreign client are likely to be fairly specialized. In many cases international purchasers appear to prefer dealing with an agent who understands their culture and language. REALTORS® with a significant number of international clients tend to be ex-patriots from the buyer's country or to have family ties with the country.

In recent years the U.S. market has presented increasing opportunities for foreign buyers. U.S. home prices declined – by 22 percent between July 2006 and May 2010. In addition, the U.S. dollar has weakened in value relative to foreign currencies. This makes all U.S. exports--including real estate--an increasing value to the international purchaser.

U.S. property in many cases also appears to be less expensive than foreign property. It is difficult to make simple comparisons between U.S. and foreign property because of substantial differences in lifestyles, preferences, and the physical characteristics of properties in different countries. A few comparisons of prices show that U.S. homes are less expensive than foreign properties:

• Germany: With an average euro price of €170,000 and an exchange rate of 1.35 dollars per euro, the dollar equivalent average price for a German home was $229,500 in April of 2010, compared to a U.S. average price of $218,300.
• United Kingdom: With an average pound sterling price of ?167,802 and an exchange rate of 1.53 dollars per pound, one obtains an average dollar equivalent price of $256,737 for a U.K. home, again compared to an average U.S. price of $218,300 in April 2010.
• Australia: Given a median Australian price of Aus$542,827 and an exchange rate of .9 U.S. dollars per Australian dollar, one obtains an equivalent U.S. dollar price of $488,544 in comparison to a U.S. median price of $169, 500 in March of 2010.

International sales will probably continue to increase in coming years. Some potential foreign buyers are reported to have been reluctant to enter the U.S. housing market in the last 19 months, given financial, economic, and price uncertainties. This is expected to change as the economy recovers. In addition, the world is increasingly international, and certain parts of the U.S. are viewed as highly desirable for second/vacation homes. In addition, foreign corporations increasingly locate functions, manufacturing, and employment in the U.S. as the world’s economies become increasingly meshed together. Finally, in many cases international purchasers come from countries with growing economies and increasingly strong currencies—again providing opportunities for future purchases. Accordingly, it appears that international sales will continue as an increasingly important part of the overall market in a number of areas.

What does this mean for REALTORS®?

The international market is an increasingly important market for REALTORS®. International purchasers tend to buy homes above the median price, and have found that the U.S. market offers good value in comparison to their home markets.

On the buyer side of the market it appears that REALTORS® catering to international clients are relatively specialized, being familiar with the language, cultural, and social backgrounds of their clients, and with experience in facilitating the additional paperwork and procedures necessary for the successful completion of a transaction. International transactions tend to have higher prices and are more likely to be cash based than is the case for domestic home purchases.

On the seller side of the market it appears that there is much less specialization by type of client: a foreign purchaser would be unlikely to differentiate properties on the basis of listing agent. This is substantiated by the fact that most REALTORS® with international clients typically have only one or two international transactions. It would appear, therefore, that REALTORS® on the seller side of the market may find that developing a cultural awareness of prospective international clients in terms of customers, expectations, preferences, and language may be desirable in facilitating the sales process.

*NAR uses median prices and sales as reported by an MLS sample benchmarked to cover the entire market.

** NAR has issued a number of reports based on surveys of international buyers; the profiles of international home buying activity may be found at www.realtor.org/research/research/reportsintl starting with data for 2007.