by CNBC, Diana Olick
Challenging conditions in the US housing market, along with tighter currency controls by the Chinese government, caused a stunning drop in foreign demand for American homes.
The dollar volume of homes went down from foreign buyers, according to the National Association of Realtors. The data from April 2018 through March 2019 saw a drop of 36%.
The decline is due to a drop in the number and average price of purchases.
The Chinese are the leading foreign buyers of homes in the United States for the seventh consecutive year, purchasing an estimated $13.4 billion worth of residential property. Yet still that was a 56% decline from the previous year and the largest percentage drop of all foreign buyers. The Chinese government also tightened its grip on the outflow of cash to purchase foreign property.
Souring over trade tensions may be one major factor in the slow down. Southern California has seen a decline in Chinese buyer demand. Southern California had been particularly popular with Chinese parents hoping to send their children to American colleges.
Even in Chinese buyer inquiries for U.S. properties on Juwai.com, a Chinese real estate site, were down 27.5% from a year ago. Inquiries have been down in four of the last five quarters.
“This is due to the combination of anti-Chinese political rhetoric, a clampdown on visa processing, and of course tariff,” Carrie Law, CEO of juwai.com, said in a recent interview. The Trump effect is undercutting some of the primary drivers of Chinese demand for US property including students that are studying in the U.S. and the country’s reputation as a safe investment.”
Chinese buyers were followed by Canadians, Asian-Indians, U.K. buyers and Mexican buyers. The Chinese purchased approximately the same number of homes as Canadians, but the Chinese bought pricier homes and therefore beat the Canadians in dollar volume.
Foreign buyers include those living in the U.S. for work, study or other reasons.
With the decline in the sales, Realtors point to the steep runup in home prices over past several years, in consequently the shortage of existing homes for sale, foreign buyers have long been big players in the newly built housing market, where homes are more expensive.
Historically, there is a large supply in the areas such as the Inland Empire of Southern California as well as Texas and Florida. In the next few months the scarcity of buyers in these markets might drive the value to stagnate or fall.
Foreign investors continued to flock to Florida. One in 5 foreign buyers purchase their properties in the state. About 42% of Canadian buyers purchase in Florida.
This is followed by California, about a third of Chinese buyers purchased property in California, but the figures are down the previous year. Texas, Arizona and New Jersey are the nest on the list.