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October 21st, 2011

Will foreigners save the U.S. housing market?



foreign currencyBack in July, our own Peter Miller introduced just how important foreign homebuyers were to the U.S. housing market. According to the National Association of Realtors, for the 12 month period ending March 2011, foreign buyers and recent immigrants accounted for a total of $82 billion in internationally oriented sales, representing 8 percent of total U.S. sales.

Understanding their influence on the market, two U.S. lawmakers have introduced a bill that encourages foreign buyers to purchase U.S. real estate.

Senators Charles Schumer (D-N.Y.) and Mike Lee (R.-Utah) have co-sponsored a bill that is designed to grant a U.S. residence visa to any foreign borrower who spends at least $500,000 on residential real estate here in the U.S.

Nick Timiraos of the Wall Street Journal explains that foreign buyers can either spend the entire $500,000 on one property, or spend as little as $250,000 on one property and invest the rest on rentals.

If the billed is passed, we could see a significant boost in real estate activity, given the fact that several U.S. markets already depended on the influx of activity that foreign borrowers bring.

According to Les Christie of CNNMoney.com, ”In places like South Florida, international buyers already account for a whopping 25% of the market. California, Texas and Arizona also attract many foreign buyers, as do Hawaii and New York.”

To qualify for the visa, foreign buyers must pay cash, pay U.S. taxes and spend at least 180 days in the U.S. However, the offer isn’t without restrictions. This visa doesn’t allow foreign borrowers to work here (unless they were granted a work visa as well), and they cannot take out home equity loans against their properties. The tradeoff is that the visa will allow them to live in this country for at least three years with their spouse and any children under 18.

According to the NAR’s Profile of International Home Buying Activity 2011, ”International buyers came from a total of 70 countries; the top five (Canada, Mexico, China, U.K., and India) accounted for 53 percent of transactions. Most states had at least one international transaction, but four states—Arizona, California, Florida, and Texas—accounted for 58 percent of transactions.”

The 2011 profile goes onto explain why U.S. real estate attracts foreign borrowers. For starters, thanks to the recent downturn, properties here in the U.S. are far cheaper than in many foreign markets. Many foreign buyers view American real estate as sound investments with plenty of appreciation potential.

Despite the upside this bill could have on our housing market, not everyone is sold on the idea. Critics say that the investors this residence visa targets don’t need an incentive to buy. Instead, we should be focusing on fixing the economy so that the American citizens that wish to buy can do so.

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2 Responses to “Will foreigners save the U.S. housing market?”

  1. Karen Says: October 22nd, 2011 at 5:50 am

    I don’t think it will help us.

  2. Housing to Non-American citizens | Taste of Ignorance in America Says: December 13th, 2011 at 3:28 pm

    [...] Will foreigners save the U.S. housing market? (hsh.com) [...]

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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