The hot housing market across the country exists despite a massive reduction in foreign investment during the pandemic. Easing travel restrictions could rekindle foreigners’ interest in US real estate, pushing up house prices in some markets.
On Monday, the White House announced that it will begin allowing international travelers to come to the United States if they can show proof of COVID-19 vaccination and a negative COVID-19 test taken within 72 hours of their arrival. departure. Since the start of the pandemic, travel restrictions have remained in place, barring entry to most international travelers from areas of the world with high levels of COVID transmission.
These travel bans have not only hurt the hospitality industry, they have also resulted in a significant decline in international investment in US real estate. International buyers bought just 107,000 residential properties in the United States between April 2020 and March 2021, down 31% from the previous year, according to data released in July by the National Association of Realtors. It represented the lowest level of foreign investment in a decade.
“There has been a 31% decrease in the number of homes purchased by foreign investors during the COVID-19 pandemic.“
The slowdown was particularly marked among major buyers of US real estate. China, Canada and Mexico consistently rank among the top five buyers of US homes and condos, but the dollar volume of investment from those countries has fallen by 50% or more this year.
“We have seen in major markets a dramatic drop in foreign investment mainly due to travel restrictions – and apart from travel restrictions, the lack of consular offices and embassies are opening up to issue visas,” Edward said. Mermelstein, founder of One and Only Holdings, a New York-based advisory firm for high net worth investors.
The “psychological problem” facing international investors
Even before the closures and social distancing began in the United States, real estate agents were reporting a slowdown in interest from foreign buyers. While international travel quickly became difficult at the start of the pandemic, buyers were less inclined to spend their money on US real estate.
“They are used to touching and feeling their investments because for them the United States is their safety net,” Mermelstein said of foreign investors. “For them not being able to watch and experience everything they put their money into is a psychological problem.”
While some Americans have chosen to buy homes virtually during the pandemic – in many cases relying on video tours and 3D technology to get a feel for how the property will look – there is no had the same degree of adoption of these methods by international buyers. During the pandemic, international buyers may have become even more hesitant to take this route.
““They are used to touching and feeling their investments.“
For Auction.com, an online platform for foreclosures and listings of bank-owned homes, the share of purchases made by foreign buyers fell from 12% in the first quarter of 2020 to 8% in 2021. the Demand left by some outgoing foreign investors has been met by demand from out-of-state buyers, ”said Daren Blomquist, vice president of market economics at Auction.com.
But even with the easing of travel restrictions announced this week, it may be some time before foreign investment really picks up. Part of the problem is vaccine requirements: if the United States requires international visitors to be treated with FDA-approved vaccines, it could prevent many trips from countries that have invested in it. other vaccines such as China and Russia.
“We’re going to exclude a lot of the world outside of Europe,” Mermelstein said. “I think we’re going to see a continued lag, especially from emerging markets.”
Some markets are poised to benefit more from international investment
The more expensive coastal markets tend to attract the most attention from international investors, according to real estate experts.
For the past 13 years, Florida has been the top destination for foreign buyers, accounting for 21% of international purchases. In 2021, California came in second with 16%, followed by Texas (9%) and Arizona (5%), followed closely by New Jersey and New York with 4%.
Where foreign money is flowing now that travel is easier, house prices will likely increase.
The travel ban likely contributed to easing demand from foreign buyers for US real estate, but it did little to slow the rapid rebound in the US real estate market in the second half of 2020 and through. present in 2021 “, Blomquist mentioned. “Adding demand from foreign buyers into the mix will likely only add more fuel to the already hot housing market fire.”
At the city level, metropolitan areas like San Francisco, Los Angeles, Miami and New York attract tons of foreign dollars, due to the strength of real estate values in these markets. But Blomquist argued that the dynamics of the housing market in the era of the pandemic mean that foreign investors can shift their attention away from major metropolitan areas.
“I would not be surprised to see the investment thesis of foreign investors moving to more affordable and less dense domestic housing markets given the pandemic accelerated transition to these types of markets and away from more housing markets. expensive and denser on the coasts, “he said.
Will the Evergrande crisis propel foreign investment in the United States?
Another problem abroad, but unrelated to travel abroad: the Chinese real estate giant Evergrande 3333,
has garnered a lot of attention over the past week after hiring financial advisers, with analysts voicing concerns about a possible default.
Fears that Evergrande’s financial woes could turn into a repeat of the 2008 financial crisis caused the stock market to fall earlier this week. There are also reports which indicate that the Chinese government may decide to split Evergrande into several entities in light of its problems.
The situation was a reminder of the main reason international investors continue to pump money into the US real estate market, Mermelstein said.
“While China has seen explosive growth over the past decade and more,” Mermelstein said, “the security of the United States is something that is very difficult to oppose.