As the demand for housing decreases, ignore foreign investors

Just when you think you can anticipate the next real estate trend, get ready for a new twist.

Home prices rose 5.4% nationally in June from a year ago, according to the S&P CoreLogic Case-Shiller index. Although this is a drop from the 5.9% pace recorded last month, this rate is still very high.

Current home price data shows that affordability remains a major challenge for buyers today, especially when coupled with continued high interest rates.

Meanwhile, sellers who closed with record mortgage rates of 3% or less during the crisis were reluctant to sell, limiting supply and leaving fewer options for potential buyers.

Despite all the external factors cooling overall home sales — high interest rates, low spending power among residents, lack of inventory — home sales are still hot in some key areas.

What, and more importantly, who is causing the growth? Given what is shown in the National Association of REALTORS report on international transactions, it may not be the buyer you expect.

Florida: high-demand state despite low national demand trends

For example, look at Florida. The data points to a microcosm of these cooling market trends, yet the state remains a leader in property growth.

In Florida, new housing inventory did not grow significantly: the number of newly listed homes stood at 43,081, an increase of 8.8% year over year according to Redfin data.

Florida is the top state in new residential construction, yet Florida homebuilders have not reported significant increases in new construction sales. In fact, for the summer, 69% of Florida homebuilders agree that June was slower than expected and is cause for concern, as reported by reporter Lance Lamberts.

Similar trends are occurring elsewhere across the sunbelt in Texas, Arizona and Georgia.

Despite reported stagnant sales and slow inventory growth, why are these particular areas of the Sunbelt still considered attractive to buyers? Foreign investment is one answer.

Foreign investors can help fill the consumer gap

Florida remains the top destination for foreign buyers, with 20% of all foreign buyers buying in the state, according to the 2024 NAR report.

This is an interesting statistic to watch because foreign investors face different barriers to buying than their domestic counterparts.

Some external factors influence the decision making of international investors. The slow pace of new construction, attractive property prices, currency controls, short-term rental restrictions, and the impact of high interest rates relative to rental income are concerns for foreign buyers.

But unlike domestic buyers in the current market, foreign buyers are less concerned about costs.

The NAR report shows this clearly. International buyers who bought a home last year spent record prices, averaging $780,300 per property and average home buyers $475,000, according to the NAR report. That’s well above the average cost for all buyers at $392.6K. Luxury properties are also off the table for foreign investors – about 18% of international buyers bought properties worth more than $1 million, the report shows. This doesn’t even take into account international buyers who don’t own new construction and homes currently under construction, both of which are not included in the NAR report.

What does this mean for the future?

Now that home sales have slowed to domestic buyers, more inventory is available and foreign buyers can fill the void, boosting homebuilder activity, the local economy and overall housing markets in key states, such as Florida.

The housing market will always have its ups and downs. But even if things cool down, sellers, agents and lenders should not count out international investors. Of course, these buyers still have a number of financial, legal and compliance hurdles to navigate in the US home buying process. But when the buying process goes well, foreign investors remain an important part of residential real estate buyers.

Yuval Golan is the CEO of Waltz.

This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.

To contact the editor responsible for this piece: [email protected]

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