Chinese Buying Of US Homes Drops 61% To 11-Year Low As Pandemic, Trade War, And A Weakening US Dollar Take Toll

U.S. home sales to Chinese buyers dropped to at least an 11-year low in 2020 as travel restrictions imposed to restrain the COVID-19 spread and a weakening U.S. dollar kept buyers away, shows the latest data from the National Association of Realtors.

What Happened: The sale of existing homes to Chinese buyers plunged 61% to $4.5 billion in the pandemic-ravaged fiscal year ended March, according to the U.S. real estate industry body tracking the sector. 

Despite the significant drop, the Chinese are still on the top of the foreign buyers' list in terms of the dollar value of homes purchased. Total foreign home buying in the U.S. dropped 27% to $54.4 billion, the lowest since at least 2011.

That represents just 2.8% of the total $1.96 trillion worth of existing U.S. home sales annually.

Chinese buyers over the past decade have become the biggest foreign contributor to the U.S. housing market, peaking at a record $31.7 billion in 2017 before slipping due to an escalating trade war between the world’s two largest economies.

Data: Courtesy of NAR.

Weaker Dollar Impacting U.S. Real Estate? U.S. 30-year mortgage rates have fallen to a historic low of around 3%, spurring demand for housing in the country. However, due to years of underbuilding and a decline in listings, supply has not kept pace with demand.

“With the expansion in money supply, the result is a weaker dollar,” NAR Chief Economist Lawrence Yun said in a statement.

“A weaker dollar has softened the sharp appreciation in home prices measured in U.S. dollars for international clients when U.S. home prices are measured in their local currencies.” 

As of May 2021, the value of the dollar was down 7.3% against the Chinese Yuan, with larger declines against the Canadian dollar at 10% and the British pound at 10.9%, according to NAR.

Arrivals to the U.S. plummeted from about 5.8 million a month prior to the pandemic to 250,000 in April 2020. 

Since then, arrivals to the U.S. have slowly recovered, to 1.4 million in April this year but still remain limited. Relations between the two nations remain icy and there are concerns among families and parents as to if they will be able to secure visas due to the tightened rules.

The Top Five Foreign Home Buying Nations: Canada was not far behind China in terms of dollar value as buyers bought homes worth $4.2 billion during the pandemic year, still a decline of 56% from a year ago, as per the report. 

Indians, at the third spot, made purchases of $3.1 billion, a 43% decline, while Mexico buyers purchased $2.9 billion worth of homes, a 43% decline, during the period. 

Data: Courtesy of NAR.

The United Kingdom was the only exception as foreign buying rose 93% to $2.7 billion during the year.

In terms of destinations, Florida remained the major spot as 21% of foreign buyers bought a property in the state. Florida was the top state destination among Canadian and United Kingdom buyers. 

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California emerged as the largest state where Chinese and Indians bought the most houses. The competition was neck-to-neck and Indian buyers bought more houses in California than anyone else, contributing 40% of all destinations, followed by Chinese at the second place at 34%. 

Pricing Power: Steep prices in California and the rest of the key hubs have accelerated migration to more affordable locations during the pandemic. 

Homebuilder Lennar Corp LEN had last month in an earnings call told investors Austin, Texas is the strongest market in the United States. Luxury home builder Toll Brothers TOL, which sees at least 40% of revenue from California, told investors in May that the pricing power of Austin — where the flamboyant Tesla Inc. TSLA and SpaceX CEO Elon Musk now also resides — during the pandemic is driven by higher prices in California.

“So, they are moving from areas that are very expensive. The homes are expensive, the taxes are high. And it’s giving us more power to raise the price without affordability issues being apparent,” Toll Brothers CEO Douglas Yearley Jr said, adding that the company was benefitting from these migration patterns of expensive to less expensive. 

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The median existing-home sales price among foreign buyers was $351,800, which is higher than the median price of $305,500 of all existing homes sold in the U.S. during the April 2020–March 2021 period. For Chinese buyers, it is even more at $476,500. In past years, Chinese buyers typically purchased the most expensive properties compared to the other top foreign buyers.