Published by the CIPS Network of the National Association of REALTORS®
First Quarter 2003
The Foreign Real Estate Market in the U.S.
By Nanci Gentile
Two new reports from NAR Research, released during the 2002 REALTORS® Conference in New Orleans, Louisiana, indicate that foreign-born homebuyers and foreign investors in U.S. real estate are having a greater effect on the U.S economy than ever before. Furthermore, this is a trend that is likely to continue. According to
NAR’s Cooperating Association Partners, real estate is being bought and sold cross-culturally at a rapidly increasingly rate, becoming a force in the global economy as well.
At the same time, the growth of the International Consortium of Real Estate Associations (ICREA) to 25 national real estate associations in 24 countries, and the introduction of ICREA’s Transnational Referral Protocol will soon make it possible to conduct real estate transactions across national borders with a facility only previously imagined.
A Robust Homebuyers’ Market
According to the first of the two studies, “Housing Opportunities in the Foreign-Born Market,” immigrants have contributed to one-third of the household growth in the U.S. since 1995, helping to sustain a robust residential housing market. Also, the demand for U.S. commercial real estate has benefited from immigrants selling goods
and services in shopping centers, manufacturing products, operating warehouses, and using office space.
The report, which was commissioned by NAR’s International Operations Committee, outlines eight factors affecting the buying decision of the immigrant homebuyer:
1. Age.
The typical foreign-born household today is likely to be young, which suppresses homeownership attainment because homeownership rates rise with age. Notably, younger households tend to have lower incomes and, thus, are more inclined to rent.
2. Citizenship.
Immigrants who become U.S. citizens own homes at substantially higher rates than non-citizens across all age groups. In some cases, immigrants who have achieved U.S. citizenship have been as successful in becoming homeowners as their native-born counterparts.
3. Length of Stay in the United States.
Homeownership is more likely the longer immigrants remain in the United States. After 20 years in the United States, older immigrant households’ homeownership rates match or even surpass those of nativeborn households.
4. Education and Income.
Attainment of higher levels of education and income help to boost homeownership for some foreign-born households, particularly those who have obtained their U.S. citizenship.
5. Family Composition and Size.
Immigrant households who buy a home are prone to overcrowding because they tend to have larger households. Notably, new immigrants tend to live with relatives initially, and in some cases, multiple families share dwellings until they become established. As a result, immigrants tend to have a lower rate of household formation compared to the native born. Being married improves the chance of homeownership attainment among immigrants. Also, the smaller number of persons in the household appears to elevate homeownership.
6. Region of Origin.
Differences in household characteristics contribute to disparities in homeownership attainment among immigrant groups. Higher median income, educational attainment, and smaller household size have helped sustain above-average homeownership rates for households from Europe, North America, and Asia, compared to other immigrant groups. Those from Latin America and Africa are more likely to be rental households and have homeownership rates that are below the average for the entire foreign-born households because they are likely to be younger or earning a lower median income. However, the propensity of each group to own a home increases the longer they stay in this country.
7. Location.
The concentration of immigrants in metropolitan areas with high housing costs contributes to their lower homeownership attainment. Moreover, since immigrants tend to cluster in a few states (71 percent of all new immigrants settled in six states in 2000), the impact of immigration on housing activity tends to be regional.
8. Home Financing.
The combination of increased competition and partnerships between public and private institutions promoting homeownership led to the creation of innovative funding programs that have helped expand homeownership into the immigrant market.
Among the report’s findings:
- Homeownership rates for older immigrant households who have been in the United States for 20 years match or even surpass those of nativeborn households.
- Higher median income, educational attainment, and smaller household size have helped sustain above-average homeownership rates for households from Europe, North America, and Asia, compared to other immigrant groups. Immigrants from Latin America and Africa are more likely to be rental households and have homeownership rates that are below the average for foreign-born households because they are likely to be younger or earning a lower median income. However, every group’s propensity to own a home increases with the length of residency.
The concentration of immigrants in metropolitan areas with high housing costs contributes to their lower homeownership attainment. Moreover, since immigrants tend to cluster in a few states—71 percent of all new immigrants settled in six states (California, Florida, Illinois, New Jersey, New York and Texas) in 2000—the impact of immigration on housing activity tends to be regional.
REGIONAL DISTRIBUTION OF FOREIGN-BORN POPULATION IN 2000
 | Northeast | Midwest | South | West |
| Europe | 39% | 17% | 20% | 24% |
| Asia | 19% | 13% | 20% | 48% |
| Africa | 33% | 9% | 31% | 27% |
| Latin America | 18% | 7% | 33% | 42% |
| Caribbean | 46% | 2% | 49% | 4% |
| Central America | 5% | 9% | 27% | 59% |
| Mexico | 2% | 10% | 25% | 63% |
| Other | 17% | 6% | 36% | 41% |
| South America | 46% | 5% | 35% | 14% |
| North America | 24% | 14% | 23% | 39% |
Source: U.S. Bureau of the Census
A Booming Investment Picture
A second report, “Foreign Investment in U.S. Real Estate,” says the amount of this investment increased to $44 billion (€43.12 billion) in 2001, up from $38 billion (€37.24 billion) in 1997, an increase of nearly 16 percent in the five-year period. It demonstrates that the huge flow of overseas funds into the United States real estate market provides benefits to American consumers in the form of job creation and cheaper mortgage rates for homebuyers.
The study pays particular attention to the impact of foreign investments on the U.S. economy over the past five years, and shows sharp increases in foreign holdings of U.S. real estate during that time, citing globalization and the desire by investors to diversify their portfolios as contributing to the growth in the real estate sector.
According to NAR Chief Economist David Lereah, “United States real estate offers foreign investors diversification of their investment portfolios so that their assets are not fully tied to the health of their domestic economy.” He goes on to say that income-producing properties in the United States generally offer higher yields than similar investments abroad as well as an inflation hedge. “Over the last 10 years, the value of existing residential properties in the United States has risen by a compound annual average of 4.2 percent as compared to 2.7 percent inflation.”
The study points out that Japan’s consistently high investment share over the past five years underscores its important role as an investment source; that The Netherlands, Germany, Canada, Latin America and the United
Kingdom are all strong players, and that the influences of Germany, Canada and Latin America have increased noticeably since 1995.
The growth of the U.S. domestic real estate market benefited from substantial investment from abroad, much of it from investors searching for assets with superior but stable returns. The continuation of this trend will depend on the performance of foreign economies, creation of capital for new investment, and whether foreign economies are doing well in comparison to the U.S. economy.
According to some international economists, Germany, The Netherlands, United Kingdom, Japan and Latin America all look to perform much better in 2003 than in 2002. However, for a variety of geopolitical and
economic factors, the United States is expected to lead the next global expansion.
FOREIGN DIRECT INVESTMENT POSITION IN U.S. REAL ESTATE BY COUNTRY FOR 2001
More articles >> |
