Stop the Presses. There’s Good News Out of Washington

In my June 19 blog post, I mentioned that Fannie Mae and Freddie Mac had a new overseer (conservator), and he was talking about making it easier for Americans to buy a home. After years of super-conservative mortgage lending, Mel Watt told the world he was going to try to help more people buy a home in the United States.

I’m always skeptical about statements that come out of Washington, D.C. I learned a long time ago that just because someone in D.C. says something, it doesn’t mean that anything will come of it. But at the same time, I still remain naively hopeful that occasionally someone in Washington will actually do what they promise.

It appears that Mr. Watt might be just such a person.

In an Oct. 17 article, the Wall Street Journal reported that Fannie and Freddie and their regulators were close to an agreement to “greatly expand” mortgage credit and give some much needed protection to mortgage lenders.

The article reported it would be easier for lenders to offer mortgages with just a 3 percent down payment again. The new policies will be designed to ease lender fears of regulatory and legal punishment if they make a home loan that subsequently becomes delinquent.

This is a big deal.

The housing market is a vital component of the U.S. economy. We need to sell more homes, and we need to build more homes. Part of the reason new and existing home sales haven’t grown in 2014 as fast as expected is that it’s still too hard for qualified buyers to get a loan. Many people in the United States simply don’t have the funds for a 20 percent down payment.

If these changes are made, then it will open up the home purchase option to many Americans who currently can’t get a mortgage. Existing home sales will increase. New home sales will increase. New home construction will increase and create lots of new jobs.

Our economy could use a shot in the arm. A more robust housing market is about the most potent shot it could get.

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Don’t Expect Inflation Anytime Soon

It’s no secret that most of the things we buy today are made by Chinese workers. We buy other things from European and Japanese workers, and we buy oil from the Middle East.

When the U.S. dollar gets stronger compared with the currencies in these countries, it buys a lot more stuff. That’s exactly what is happening now. Our dollar is getting more valuable, compared with the Euro, the yen and the yuan.

Here is “takeaway” theorem number one:

A stronger dollar is deflationary to the U.S. economy.

One reason for this is that our economy is stronger than most others’. It’s not very strong, but compared with most, we look like The Incredible Hulk. We still have the rule of law here. We still have intellectual property rights. We don’t have stifling labor union rules that make our workers noncompetitive in the global market. And don’t forget the United States is full of consumers who love to buy things.

A second reason our dollar is gaining strength is that our competitors are weakening their currency on purpose. The fact is that Japan, Europe and China need to sell a lot of stuff to us. When they cheapen their currency, it makes all of their products seem to be “on sale” for American buyers.

How do Japan, China and the Eurozone countries cheapen their currency? It’s simple. They just tell the world they are willing to print copious amounts of money. They don’t actually have to print money; just say they are going to do it.

Here is an example. In November 2012, just prior to his election, Japan’s Prime Minister Shinzo Abe said, “If we come into power, we will implement bold monetary easing through tight coordination with the Bank of Japan.” He called for “unlimited” easing.

The phrase “easing” is just a euphemism for printing lots of money.

Here is an example of how the Chinese view the situation. In March 2013, the president of China’s huge sovereign wealth fund said, “The currency war situation is quite severe. China is definitely a victim.” He warned Japan against using its neighbors as a “garbage bin” by deliberately devaluing the yen.

Europe has maintained a high profile regarding its currency as well. Mario Draghi is the president of the European Central Bank. In a February speech, he said, “I don’t have a cool attitude at all with respect to these levels of inflation.” Inflation is too low in Europe. Remember how you can get inflation? You threaten to print money to lower the value of your currency.

Here is “takeaway” theorem number two:

A weaker Euro is likely to cause higher inflation in Europe.

America has complained for years about how the Chinese manipulate their currency so that Chinese goods are cheaper than American-made products. Just a few months ago, the Treasury Department stated diplomatically that the Chinese currency is significantly undervalued. U.S. Senators Sessions and Brown stated it more precisely: “China’s currency manipulation weakens our economic recovery and makes U.S. exports less competitive, which is why we must combat it with every tool in our toolbox.”

Some people refer to these tactics as a “currency war.” The idea is that each country devalues their own currency so that their products are the cheapest in the world. They get market share all over the world, and other countries lose employment and wealth. In my opinion, the United States and other countries are continuously in a currency battle and have been for decades. It’s not something new.

If you find this topic interesting, a good book to read is Currency Wars by James Rickards.

Here’s the bottom line. Our economy is one of the strongest on the planet right now. We are talking about raising interest rates. When we do, more money will flood into U.S. bonds. This will make the dollar even stronger, and this will reduce the likelihood of inflation in America. How long will this deflationary trend persist? Until other parts of the world become more attractive to investors, causing them to sell U.S. assets and move their funds out of the country.

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Quantitative Easing, Part 2

In my previous blog post, I mentioned that all the trillions of dollars the Fed has “printed” actually has not been printed. The new money has largely been parked in the form of excess reserves in the largest banks. The post concluded that as long as the money remains parked in excess reserves, inflation is likely to remain in abeyance.

The next logical question is: What happens when the money gets up and drives out of the parking lot and into the shopping malls? Isn’t that when we get runaway inflation for sure?

What would have to happen for all this money to get “printed” and into the economy? The excess reserves must be loaned out to consumers, businesses and investors. If consumers borrowed and spent $2 trillion in a short time, prices would certainly go up. If investors borrowed $2 trillion to build new office buildings, retail shopping centers and hotels, prices would certainly go up.

Of course, the Fed has plans to prevent this from happening. Its game plan has three parts: 1) paying interest to the banks on their excess reserves, 2) using reverse-repurchase options to soak up excess cash in nonbank institutions and 3) raising the Federal Funds rate.

In the past, the Fed would just raise the Fed Funds rate until it got high enough to choke off excess loan demand. In effect, the Fed would outbid consumers and businesses for the loanable funds. It would make rates go high enough until loan demand was reduced to desirable levels. To accomplish this, the Fed would actually sell bonds it owns to the banks. This removes lending capacity from the banks and effectively ends the worry about excessive lending and any threat of inflation.

However, the future is not the past. In 2014, the Fed doesn’t want to sell the bonds it holds back to the banks. The Fed worries that if it does this, the interest rates on longer-term Treasury bonds and mortgage rates for homebuyers could increase and choke off the economic recovery.

So how does the Fed soak up the excess cash without selling bonds back to the banks? It will pay banks interest on their excess reserves. If and when the Fed feels the pressure of rising inflation, it will pay banks a high enough rate to encourage them not to lend to private sector businesses and consumers. In effect, the Fed will outbid the private sector for loan funds.

The second tool is referred to as reverse purchase agreements (affectionately referred to as reverse repos). Because the Fed doesn’t want to sell the bonds it owns, why not sell them to banks and money market funds for a few days, weeks or months and then buy them back at a higher price? Sound complicated, esoteric and bewildering to the average American? It is.

But the bottom line is that the Fed will structure these reverse repos so that banks and money market funds will continue to park their cash with the Fed and not go overboard in lending to the private sector. The profit on these repos must be high enough to entice banks and money market funds to choose to buy them rather than make loans to the private sector.

If and when our economy gets strong enough that consumers, businesses and investors want to borrow trillions of dollars in excess reserves, the Fed will raise interest rates on excess reserves and reverse repurchase agreements high enough to entice lenders to keep all that money safely parked with the Fed and not spend it at the shopping mall.

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Quantitative Uneasing

For the past six years, many people have asked me why we don’t have runaway inflation in this country. They tell me how the Fed has printed trillions of dollars and that it is only a matter of time before we see the dollar collapse and prices spiral. Here is my opinion on why this hasn’t happened.

When the U.S. economy gets sluggish, the Federal Reserve lowers interest rates. When the U.S. economy is nearly dead, they lower interest rates and then leave them low for many years. Part of the plan the Fed has used to stimulate economic growth has been labelled “quantitative easing” (QE).

Because our economy relies heavily on consumer spending for economic growth, the Fed has been encouraging people to spend money for the past six years. How better to do this than to just print a lot of it? The Fed and Treasury prefer to describe this process as “expanding the balance sheet.” QE is another phrase of choice. Both of these sound better than “print a lot of money.”

What is QE in simple terms? The Fed expands its balance sheet by buying bonds. The Economist magazine (Jan. 14, 2014) described the process like this: “To carry out QE, central banks create money by buying securities, such as government bonds, from banks with electronic cash that did not exist before.”

I love to think of the magic in that statement: to buy bonds with electronic cash that did not exist before.

The idea behind QE is that when the Fed buys bonds, it drives the prices for the bonds higher and the interest rates lower. The bond sellers suddenly have cash in their hands that is no longer earning interest. In theory, these people will then aggressively start to make loans or investments or spend the money. All these actions tend to create jobs in America. The Fed bond-buying spree also causes mortgage rates to go down and house prices to rise. QE also has caused stocks and commercial real estate to move back to record highs. So asset prices have skyrocketed, but the U.S. economy continues to grow at a sluggish pace.

Here is what QE looks like in a picture. It’s a chart of the total assets of the Federal Reserve. Notice how the Fed had about $870 billion assets on Aug. 1, 2007. Then the credit crisis began, and the financial pillars of global capitalism began to crack in September 2008. The Fed began to ease quantitatively. It began electronically creating money and bought Treasury bonds and mortgages with the new money. In just two months, bonds owned by the Fed had doubled. By the end of 2008, its balance sheet was $2.2 trillion. Today, after six years of QE, the Fed’s balance sheet is around $4.4 trillion. That’s a lot of bonds!

So the Fed has electronically created about $3.5 trillion since the fall 2008. Why isn’t the economy on fire? Why aren’t we experiencing the high inflation that so many gold vendors have been screaming about for years?

The money has been created, but it’s not being spent. A fancy way to say this is that the velocity of money is really low. Where is all this newly created money going? The short answer is: nowhere.

The chart below shows the amount of “excess reserves” in the banking system. Going back to 1985, you can see that banks don’t like to have excess reserves. They would much rather have their funds loaned out to qualified borrowers to run businesses, take vacations and buy things. But this changed dramatically when QE was initiated in 2008. Since then, excess reserves have ballooned from virtually zero to over $2.6 trillion.

banks excess reserves

So the Fed conceptually created $3.5 trillion in fresh cash since 2008, but about $2.6 trillion of that is buried in the largest banks in the country earning .25 percent interest from the Fed. Essentially, money is not really “printed” until a bank loans the money to someone to buy something. As long as the money stays in excess reserves, it’s not really printed.

Here is how Ben Bernanke described this phenomenon in a speech in 2009:

“However, banks are choosing to leave the great bulk of their excess reserves idle, in most cases on deposit with the Fed. Consequently, the rates of growth of broader monetary aggregates, such as M1 and M2, have been much lower than that of the monetary base. At this point, with global economic activity weak and commodity prices at low levels, we see little risk of inflation in the near term. . . . ”

Hence, the Fed technically hasn’t printed trillions of dollars. It has expanded its balance sheet and purchased bonds from banks. This purchase of bonds has created massive excess reserves but not a massive increase in the money supply. As long as the money created stays buried in the reserves of the banking system, the threat of inflation stays in abeyance.

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Too Much Money Chasing Deals

Remember back in the halcyon years of 2007 and early 2008 when commercial real estate prices were high and yields were low? Real estate investors large and small were having a hard time finding investments that offered sufficient yield. A common phrase was,“There’s just too much money chasing deals.”

Fast forward to today, just six years later. If you thought there was too much money chasing deals in 2008, well now there is even more money chasing the same deals. Our central bank has “printed” several trillion new dollars since then. China has to print a lot as well to keep their currency low to give their manufacturers the unfair advantage they have enjoyed for years. Japan has decided to print a lot of money. Their new leader Abe has basically said he will print unlimited yen to keep the Japanese currency cheap and create inflation at home.

Commercial real estate prices in America have rebounded dramatically in the past two years. But does this mean the buildings are overpriced, or does it mean that the value of money is just declining? When governments freely print trillions of dollars all over the globe, it makes sense that the worth of individual dollars, yen, yuan or euros goes down. Whenever there is a glut of anything, its value declines.

Here is what I’ve noticed in recent months:

  • S&P 500 companies have $1.9 trillion of profits they have earned outside of America doing virtually nothing.
    • Apple has $132 billion overseas.
    • GE has $57 billion overseas.
    • Pfizer has $49 billion overseas.
    •  eBay has a miserly $9 billion outside of America.
  • Corporations and large investors have $904 billion parked in U.S. prime money market funds that earn virtually nothing.
  • There is a total of about $2.6 trillion in U.S. money market funds that earn virtually nothing.
  • A recent report from Bain Capital suggests that private equity (PE) firms had more than $1 trillion in unused cash at the end of 2013. Trust me, PE firms and their investors do not like to have cash earning nothing.
  • Goldman Sachs recently raised $2.4 billion for its second real estate debt fund. With leverage, it will be able to buy over $4 billion in maturing commercial real estate loans.
  • Carlyle Group raised $5.5 billion in new equity capital in first quarter 2014, raising its total assets under management to $198 billion.

As you can see, money is everywhere. It’s looking for work. It’s sitting around doing nothing. It is searching for yield. When a solid real estate deal comes to market in coming months, it will garner a lot of attention.

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Let’s Play Musical Chairs (Again)!

Back in the glory days of 2007 and 2008, prices for commercial real estate were hitting all-time highs. The yields on those properties were at all-time lows. At that time, I remember hearing investors from all over the country talking about how they were getting ridiculously high offers on properties they owned. I also remember them asking this question: “But if I sell my properties, where would I re-invest the money?”

Then in February 2007, Equity Office Properties (EOP), managed by the legendary Sam Zell, sold its portfolio of office buildings to Blackstone for $39 billion. This to me was a sign of the top of the commercial real estate market at the time. When the wise men sell, it’s probably a sign of the peak.

Blackstone immediately started selling off properties out of the portfolio to other investors. A large investor purchased eight buildings for around $7 billion on the same day they closed with EOP. The large investor clearly hoped to turn around and sell these same buildings to somebody else at an even higher price.

About this same time, I started hearing huge investors refer to the market as “a game of musical chairs.” That is, as long as the music keeps playing, everyone wins. But when the music stops, there won’t be chairs for everybody.

Fortunately, in the 560 speeches I have given since April 2008, I haven’t heard any reference to musical chairs. UNTIL LAST MONTH. The market for commercial real estate in many parts of America is absolutely on fire again.

Here are some facts and quotes I have collected from the Wall Street Journal in the past four months:

  • Urban office building prices in the first quarter of 2014 were 11.3 percent above their 2007 peak levels.
  • Blackstone is selling five high-rise office towers in Boston. They sold $9 billion in office properties in 2013, up from $1.8 billion in 2012. Blackstone has $80 billion in real estate assets under management.
  • According to their CEO Leon Black, Apollo Global Management is “selling everything that is not nailed down.” Their real estate group had $9.1 billion in commercial real estate under management at the end of June.
  • Carlyle Group sold $3.1 billion in assets in the first quarter of 2014 and purchased $1.1 billion in new deals. CEO William Conway was quoted as saying, “The world continues to be awash in liquidity, and investors are chasing yield seemingly regardless of credit quality and risk.” Carlyle has $43 billion in real estate assets under management.
  • Winthrop Realty Trust is liquidating the company. The company specialized in buying and selling distressed commercial properties. CEO Michael Ashner said, “I don’t see real relative value in the real estate space. Margins have compressed.”
  • Commercial mortgage lending standards are easing as well. The Journal reported that more than 25 percent of new commercial mortgage backed securities (CMBS) had a loan-to-value ratio above 75 percent. This is up from just 5 percent in 2010. Twenty-two percent of CMBS loans in the fourth quarter of 2013 were made on properties with additional subordinated debt, up from just 10 percent a year earlier.

Over the past five years, I’ve told a lot of people that I would mention it if I ever heard a reference to musical chairs . . . that this would be a sign of moving closer toward the top of the market for this new cycle. Clearly the music is playing again. Listen carefully.

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Media Should Come With a Warning Label

I have mentioned to audiences for several years now that if you are watching Fox News or MSNBC for more than seven minutes a day, not only are you wasting your time but you are also causing yourself mental and emotional damage. I watch a lot of CNBC, and it is subject to the same issues.

One problem with the media is that they try to make everything into a crisis. Another is that sometimes government and businesses use the same media to gloss over real problems and pretend they don’t exist.

For example, back in 2008 the Federal Reserve tried to convince Americans that the problems in the credit market were contained in the subprime residential lending market. That was completely untrue and was designed to keep the public from panic. Unfortunately, if you were an investor and made decisions based on this announcement, you would have lost a lot of money.

Just 15 months ago the fixed-income market dropped dramatically because then-Fed-Chairman Bernanke mentioned the word “taper.” He suggested the Fed could begin to withdraw from purchasing Treasury bonds and mortgages in the near future. Interest rates on Treasury bonds and residential mortgages went up quickly and sharply. The commentators worried on the airwaves that rates could go up substantially by the end of 2013 and into 2014 as the Fed ends its intervention in the bond market.

They further speculated increased rates could really hurt the housing market and impact the value of commercial real estate. All of this was eventually a flash in the pan. Rates actually have fallen since the turn of the year. Another red herring.

For the past five years, “analysts” have been screaming about coming runaway inflation. By showing half of a story, they can build that case. Yes, the Fed’s balance sheet has increased by trillions of dollars. But what you never hear in the news is that the massive decline in the velocity of money has offset any inflationary pressure in consumer prices. Here is another example of how investors who were swayed into buying gold at $1,900 per ounce were poorly served.

In early 2014, commentators explained that U.S. stocks were going up for several reasons. One was that Europe “had turned the corner.” Europe was supposedly on the rebound and would soon be buying goods and services from U.S. firms. But at the same time, Mario Draghi with the European Central Bank was sending an entirely different message. By lowering interest rates on reserves to an unprecedented negative rate, he was clearly signaling that Europe was far from turning any corner.

Financial and general news broadcasts continue evolving into a propaganda outlet for people to influence behavior of others who don’t have the time or the skills to ferret out the truth. Currently it seems that if you can make some outrageous “forecasts,” you can be a famous media darling for 15 minutes. If your lucky guess turns out to be right, then you could be famous for several years.

What is the takeaway here? Take everything you hear coming through media channels with a huge grain of salt. The urge to offer sensational “news” appears to be overwhelming. In an era of declining newspaper and magazine readership and declining TV ratings, the urge to produce continuous crises is understandable. If there isn’t a crisis brewing, Americans would prefer to do something else with their time.

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Wall Street Landlords

Just a few short years ago, Wall Street took its first look at buying homes to rent out for income. Large institutions like pension funds, real estate investment trusts and insurance companies have invested in commercial real estate properties for decades. But investing in thousands of single-family houses was unprecedented at the time.

Initially, the concept was that these large firms would buy up thousands of distressed houses that were in various stages of foreclosure. The plan was to buy them at a large discount, fix them up and rent them for income.

Because there is always some “crisis” in the news, the fear at that time was this: What if these large investment firms buy up thousands of homes and then decide to sell them? When they put a large inventory of homes up for sale, won’t it depress the housing market and wipe out the housing recovery?

Here are the biggest players in this market in the United States, based on the number of homes they owned at the beginning of 2014 (according to the Wall Street Journal).

Wall St Landlords

A recent Bloomberg article estimates that private equity firms, hedge funds and other financial giants have bought nearly 200,000 rental homes in the past two years.

It appears that the institutional appetite for single-family homes is waning. Prices have risen dramatically in many markets, and bargains are much harder to find.

So what about the fear that these behemoths will stampede the market into a decline when they decide to unload these properties? That fear is pretty much unfounded. These companies have found another way to get their money back by selling bonds backed by the rents they earn from their houses. It’s like a small investor who pays cash for a property and then gets his investment out of the property with the proceeds from a mortgage.

These houses will likely be held by these large firms for many years going forward. The pace of purchasing is likely to slow dramatically, but the urge to sell is probably a long way off.

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International Buyers of U.S. Homes in 2014 (Part 2 of 2)

Here’s the second post of my two-part series based on the National Association of Realtors (NAR) 2014 survey of foreign buyers of U.S. homes.

What Price Homes Do They Buy?

Approximately 46 percent of U.S. home sales to international buyers were for less than $250,000. Chinese buyers bought homes with a median price of $523,148; followed by the United Kingdom, $350,000; India, $342,857; Canada, $212,500; and Mexico at $141,071 (Figure 1).

Based on reported transactions, the mean and median prices of international purchases were higher compared with selling prices to domestic buyers. The types of homes purchased by international clients frequently are different from those bought by U.S. buyers (Table). For example, the international nonresident client (Type A) is likely to be substantially wealthier than the median domestic buyer and is probably looking for a property to purchase after having met essential living needs that establish the individual’s presence and standing in the community.

International clients, especially Type A, frequently pay all cash. About 60 percent of reported transactions were all cash compared with domestic all-cash transactions, which generally are 30 percent of the total. Mortgage financing tends to be a major problem for international clients because they lack U.S.-based credit history and Social Security identification. They also have difficulties providing documents required for mortgages.

What Deters Foreigners from Buying U.S. Homes?

Approximately 30 percent of the international clients cited cost, taxes and insurance as major reasons for not purchasing a home. Financing issues were a problem for 19 percent and immigration issues for 9 percent.

Prospective foreign clients did not understand the costs involved in purchasing a U.S. home, which could vary a great deal from their country of origin. Interestingly, 25 percent reported they could not find a property to purchase, the result of low home inventories created by demand in the strongest performing housing markets in the country.

Where Do Most Purchase Homes?

The U.S. international home sale market appears to be geographically concentrated. There is international activity throughout the country, but the top four states represent 55 percent of reported sales (Figure 2). When deciding where to buy a home in the United States, prospective international buyers consider:

  • proximity to their home country;
  • presence of relatives, friends and associates;
  • job and education opportunities;
  • climate; and
  • location.

The top four states in terms of number of foreign homebuyers as a percentage of total U.S. sales were:

  • Florida (23 percent),
  • California (14 percent),
  • Texas (12 percent) and
  • Arizona (6 percent).

Homebuyers from Mexico

Buyers from Mexico purchased approximately 70 percent of  foreigner-bought residential property in California and Texas. According to, the five markets of greatest interest to potential Mexican buyers are San Diego, El Paso, Laredo, San Antonio and Houston. Texas continues to be preferred by residential buyers from Mexico and Latin America (Figure 3).

According to the NAR survey, approximately 49 percent of reported purchases were in suburban areas and about 30 percent in central city or urban areas. Approximately 91 percent of reported purchases were residential properties, and 9 percent were commercial land or other purchases.

Of the residential properties, 84 percent were detached single family, and 7 percent were multifamily. Mexican buyers’ home purchases averaged $224,123 with an almost even split between mortgage financing and all cash — 54 percent and 46 percent, respectively.

Homebuyers from China

Approximately 51 percent of Chinese homebuyers bought residential properties in California, Washington and New York. Based on information, the five markets of greatest interest to Chinese are Los Angeles, New York, Irvine, San Francisco and Las Vegas. Approximately 83 percent of purchases were in suburban (46 percent) and urban (37 percent) areas.

Of the residential purchases, 70 percent were detached, single family and 22 percent were multifamily. The average price was $590,826 with about 76 percent of purchases being all cash versus 24 percent mortgage financed. Accelerated growth in purchases from China has been caused by existing distortions in the Chinese real estate market that make the market susceptible to large cyclical swings.

On the supply side, local governments’ reliance on land sales for financing and real estate development for growth can lead to excess supply. On the demand side, the market is prone to bubbles because housing represents a uniquely appealing investment opportunity given real deposit interest rates that are close to zero, significant capital account restrictions, a history of robust capital gains and favorable tax treatment. These factors have caused a flight to quality by Chinese residents.

As the global economy regains its momentum, the United States will continue to attract foreign buyers. The United States is the leading world economy; it offers private property rights complemented by strong institutions and a good quality of life for its residents.

international homebuyers table, part 2

International Hombuyers Fig1International Homebuyers Fig 2International Homebuyers Fig 3

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International Home-Buying Activity in 2014 (Part 1 of 2)

It’s time for the annual National Association of Realtors’ (NAR) survey measuring the level of sales of U.S. residential real estate to foreigners. There were 3,547 respondents to the 2014 survey, almost 200 more than last year. The survey was conducted from April 14 to May 14, 2014.

Information was gathered from Realtors on U.S. residential real estate purchased by international clients during the 12 months ending March 2014. The term “international client” refers to two types of purchasers.

  • Type A are foreign clients with permanent residences outside the United States. These clients typically purchase property for investment, vacations or visits to this country for less than six months.
  • Type B are clients who are recent immigrants (in the United States less than two years) or temporary visa holders who reside here for more than six months for professional, educational or other reasons.

How did the market do?

This year’s international clients bought an estimated $92.2 billion in residential real estate. That’s approximately 7 percent of total U.S. existing home sales of $1.2 trillion (see table below). Of that, $46.7 billion is attributed to Type A clients and $45.5 billion to Type B.


International sales were up $24 billion from the previous survey. A number of favorable factors influenced foreign demand for U.S. residential properties: stronger global activity in the second half of 2013, appreciation of the Chinese yuan and the British pound, the relative affordability of U.S. residential property, and international investors’ desire for higher returns and greater security. Chinese residents are also influenced by a flight to quality.

Why U.S. homes?

Approximately 56 percent of the respondents reported profitability and security are the main factors influencing the decision to purchase in the United States. Well defined property rights, strong institutions governed by rule of law, a world-leading economy, and a recovering housing market were also factors. Foreign purchasers seek U.S. property related to employment; to house children going to college; for investment and portfolio diversification; and for vacations. Recent immigrants view home ownership as an important accomplishment in their efforts to become established in this country.

What are the countries of origin?

Realtors reported purchasers from 61 countries. Five countries have historically accounted for the majority of the reported purchases: Canada, China (Peoples Republic of China, Hong Kong, Taiwan), Mexico, India and the United Kingdom. In the latest survey, these countries accounted for some 54 percent of the international transactions. At 19 percent, Canada still has the largest share of international purchases, but China has the fastest growing source of international clients, increasing from 5 percent of international sales in 2007 to 16 percent in 2014. Mexico increased from 8 percent in 2013 to 9 percent in 2014 but still was less than the 13 percent registered in 2007 (see figure below).


What are they buying?

Approximately 65 percent of international transactions reported are single-family home sales. In addition, about 39 percent of the homes are intended to be used as primary residences for longer than six months. About 42 percent of transactions were intended for primary residences for: international students enrolled in U.S. colleges and universities, recent immigrants, and professional and managerial employees of businesses and institutions who are in the United States on a temporary but extended visit. Nonresident foreigners who are limited to six-month stays generally expect to use the property for vacation or rental purposes and as an investment.

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