Foreign investment in U.S. residential real estate jumped nearly 50% over the past year compared to the year prior thanks to a bump in Canadian purchases, according to an annual report from the National Association of Realtors.
In total, the group estimates non-citizens, including permanent residents and non-permanent buyers, spent $153 billion on U.S. homes between April 2016 and March 2017, up 49% from the 12 months prior, according to the report released Tuesday. Chinese, Canadians, British, Mexicans and Indians made up the top five buyers of U.S. homes—and all of these groups increased the amount of money spent on homes compared to the year before.
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The association bases its data on an annual survey conducted each spring, to which 6,000 realtors responded in 2017. The survey asks about closed transactions in the previous 12 month period.
The reported jump in foreign purchases runs contrary to expectations, especially given the very strong dollar compared to most foreign currencies, said Lawrence Yun, the association’s chief economist.
"That was surprising since the strong dollar would have made it more costly," Mr. Yun said. He speculated that foreigner buyers, like Chinese and Canadians—who come from countries where property values have grown exponentially over the past year—are using their appreciated housing equity in their home countries to buy second homes in the United States.
Of all foreign purchases in the U.S., around 10% were for homes priced at $1 million or more.
Canadians buy despite dollar strength
In Toronto, for example, the average sales price increased 24.5% in the year to April 2017, the same period tracked in the association’s report, according to figures from the Toronto Real Estate Board.
Foreign home buyers in the U.S. have been most active in Florida, California and Texas. Florida alone accounted for 22% of foreign activity, fueled a great deal by an upswing in Canadian buyers.
Canadians have been the single biggest foreign buyer in the Fort Lauderdale market, according to a broker with the Realtors Association of Greater Fort Lauderdale.
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The National Association of Realtors estimates that Canadians have more than doubled the amount of money they’ve spent on U.S. residential real estate, from $8.9 billion between April 2015 to March 2016 to $19 billion in the following 12-month period. That jump has happened in spite of the weakening Canadian currency, which is now about 70 cents to every U.S. dollar.
The draw of tropical climates and pools in the southern U.S. may be enough to overcome an unfavorable exchange rate.
"To a Canadian, palm trees are just about heaven," said Diane Brennan, a Canadian-American broker with Coldwell Banker in Scottsdale, Arizona. The greater Phoenix area was a huge magnet for second home buyers from western Canada in the post-recession years until the price of oil collapsed.
Some Canadians are still buying in Arizona, but the bulk of activity is now Canadians selling their Arizona homes to benefit from the "double bang" of value appreciation and the other 30% they get from bringing U.S. dollars back to Canada, Ms. Brennan said.
Chinese remain top buyers in U.S.
The influx of Canadian buyers failed to unseat the Chinese as the biggest buyers of U.S. real estate for the fourth year in a row, according to the National Association of Realtors.
The Chinese spent $31.7 billion in U.S. residential real estate between April 2016 and March 2017— despite new government controls in China to keep money from leaving the country, the association reported. While Mr. Yun said California continues to be the primary destination for Chinese buyers, local brokerages said they haven’t seen any remarkable uptick in Chinese activity.
"The Chinese are the major players in foreign home buying in California, but I do have the tendency to think reports of their buying are exaggerated," said Patrick Carlisle, chief market analyst at Paragon Real Estate Group.
"When someone buys real estate, there’s no requirement to record whether they are a citizen or not, so all the information about Chinese home buying in the U.S. is anecdotal," he added.
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Chinese buyers have traditionally bought homes in new condo developments in the Bay Area, and made considerable investment around colleges like Stanford University, where they buy homes for their children to live in.
Controls on Chinese capital outflows may already be cooling their purchases, according to the National Association of Realtors, which said that local brokerages are reporting fewer foreign buyers in 2017.
"It appears much of the activity occurred during the second half of 2016," Mr. Yun said. "Realtors in some markets are reporting that the effect of tighter regulations on capital outflows in China and weaker currencies in Canada and the U.K. have somewhat cooled non-resident foreign buyer interest in early 2017."