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April 22nd, 2013 by Marco Santarelli
Demand for U.S. real estate by foreign investors has exploded over the last year. The first reason has been the weakness of the U.S. dollar. That has allowed foreign buyers to invest in U.S. real estate that produces favorably high yields, as well as profiting from the currency trade. These two factors compound to give foreign investors greater returns.
Since 2006 property values in America had declined in many markets by as much as 70%. Now with the ongoing manipulation tactics of the Federal Reserve Bank, Ben Bernanke’s QE to infinity, and suppressed real estate inventory by the major banks, real estate prices have been rebounding in most U.S. real estate markets. That explains some of the reasons foreign investors are taking their capital and placing it in U.S. investment properties.
International buyers accounted for $82.5 billion, or 8.9%, of the $928 billion spent on residential real estate in the 12-month period ending in March 2012 according to a survey released by the National Association of Realtors last year. That was up 24% from $66.4 billion in the previous-year period.
According to the survey, about 55% of all international buyers came from five countries: Canada, China, Mexico, India and the United Kingdom. Five states accounted for close to 55% of all sales to foreign buyers: Florida, California, Texas, Arizona, and New York.
The survey also found that 62% of foreign buyers paid cash. Interestingly, up to 50% of all sales nationwide are from cash buyers, and up to 70% of sales in some Florida markets are by cash investors.
Investors and first-time home buyers are having a tough time competing with these cash investors; often losing out when their contract contains a financing contingency.
We could also see additional foreign investors coming from Europe if problems there flare up again, which I fully expect. Wealthy Europeans, in an attempt to protect their wealth, will also move their capital to America.
Another major force driving the market are Chinese investors. According to the National Association of Realtors, Chinese investors accounted for $7.4 billion of sales in the 12 months ending in March 2012, up 24% from the previous 12 months. And according to Real Capital Analytics, buyers from China and Hong Kong also spent $1.71 billion on commercial property in the U.S. in 2011, more than four-times their investment in 2008.
I predict prices will continue to increase over the next 24 to 36 months, perhaps even longer. This will be driven in large part by the market manipulation caused by government programs and policies, easy money creation by the Federal Reserve, and artificially low interest rates.
A word of caution: Wall Street investors and hedge funds are buying billions of dollars’ worth of properties right now and are waiting for inflation to increase prices. They are also aware that the U.S. government has restarted their “no money down” loan program which will inevitably lead to higher real estate prices. Once these factors come together pushing up real estate prices, the big money investors are likely to sell their positions, leaving the market at the top of another bubble.
The bottom line is that you should always know what drives a market. Look for changes in those driving factors and plan accordingly. There is tremendous opportunity and money to be in made in real estate right now, you just have to know what you are doing.
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