What's 'sold' in Portuguese?
Foreign investors, lured by favorable exchange rates and lower prices, are shopping for bargains in U.S. real estate.
Looking for a ray of sunshine in today's overcast housing market? Here's one: Foreign buyers still want a piece of the American dream.
In fact, it's somewhat ironic that immigration has become a key domestic debate in the lumbering 2008 presidential campaign. Foreign-born buyers not only have contributed substantially to the growth of the U.S. housing sector but continue to help soften the landing as the market wobbles to correct itself.
According to the 2007 State of the Nation's Housing report from Harvard University's Joint Center for Housing Studies, the percentage of foreign-born buyers that contributed to net household formations, previously 15 percent in the 1980s and nearly 30 percent in the 1990s, grew to 40 percent between 2000 and 2005.
They're coming to America all right, at a rate of 1.2 million net immigrants annually since 2000. A record 12 million additional immigrants are expected to arrive between 2005 and 2015.
"Basically, this country's household growth depends on foreign-born households," says Zhu Xiao Di, senior research analyst for the center. "It may surpass 50 percent very soon. The tightening of credit may affect them, but still, when you look at the larger picture, they are almost the only positive sign out there."
Little wonder, then, that during the past 12 months, one in three Realtors worked with an international client or prospect and nearly one in five sold a home to a foreign buyer, according to the 2007 National Association of Realtors' Profile of International Home Buying Activity, released July 30.
Those numbers are likely to grow as foreign investors, bolstered by favorable exchange rates, take advantage of the cooling U.S. housing market to snatch up great deals on vacation homes, particularly in Florida, California and New England.
America the affordable
When Engel & Volkers Group, a high-end, worldwide real-estate-licensing company based in Hamburg, Germany, opened its first U.S. office in Naples, Fla., in 2004, it was watching two indicators with keen interest: the steady rise of the euro against the U.S. dollar and the anticipated end to the fevered price appreciation of U.S. residential real estate.
When the U.S. housing bubble burst two years later, Engel & Volkers was flooded with European customers ready to buy a piece of America at fire-sale prices.
"The timing couldn't be better," says Stefan Bolsen, head of Engel & Volkers Florida. "As a U.S. citizen, you buy in the U.S. right now at 2004 price levels. Considering the currency-exchange rate, people from Europe purchase at a 2002 price point. That is very, very attractive."
So attractive, in fact, that Engel & Volkers plans to open more than 200 franchise offices in Florida alone during the next 10 years, and an equal number in New York, New Jersey and New England. It's also looking to expand into California as well as U.S. and Canadian resort areas and gateway cities.
Even tightening credit in the U.S. is unlikely to discourage its clients. According to National Association of Realtor 2006 statistics, foreign buyers were nearly four times as likely as Americans to pay cash for their homes (28% versus 8%), and spent more on average for the homes they bought ($299,500 versus $221,900).
"Europeans are traditionally cash buyers," says Bolsen. "They don't like borrowing money; they cannot sleep at night if they owe money to a bank. If they can afford the luxury of having a vacation home abroad, then they want to pay for it."
Back in courting mode
Kimberly Kirschner, broker and CEO of Kirschner Realty International in Hollywood, Fla., first started courting foreign buyers in the mid-1990s, but she stopped in 2004. "At that point, the market was coming to us, and the international buyer takes a little more time to make a decision," she says.
Now that the pace has cooled, she's back in courting mode again.
Kirschner, who primarily represents new construction and condo-conversion developments, knows the primary motivations of her international clientele: Canadians want a vacation home where they can flop in the sun for winter months; Europeans want the same or to use the favorable euro exchange rate for investment; and Central and South Americans want to move money out of their unpredictable economies into something more stable.
Kirschner says the downward-facing dollar, combined with relatively low interest rates, is helping offset the risk for foreign buyers.
"Almost every place, the currency trades favorably to the U.S. dollar at this point. Canadian currency is on par with the dollar … even the Argentinean peso looks good compared to the dollar," she says.
"If you're from a country where the interest rate is upward of 12 percent, our interest rates are very favorable. So it's not much of a leap to think you're getting a bargain on top of a bargain."
Will opportunity keep knocking?
Brian Shifrin doesn't speak fluent Portuguese, but he may soon. A real-estate agent and appraiser whose Global Real Property Solutions serves Boston's Southborough neighborhood, Shifrin spends most of his workweek appraising houses and multifamily properties for Brazilian and Portuguese buyers and investors.
"When I started appraising seven years ago, they were 90% to 95% of my business; now they're maybe 65% to 70% because I've been trying to diversify just from a business standpoint," says Shifrin. "But if not for that business, I don't know if I would even be in business."
He says the new Bostonians bring with them skills and practices that invigorate the local housing market.
"They tend to really know how to use their real estate," he says. "They're borrowing on their equity to buy another property or make improvements on a house they have. And because they are so handy and trade-oriented, any property they buy is being upgraded and renovated. That seems to be a constant. Then they want to refinance and do something with that."
Shifrin says a network of Portuguese-speaking real-estate agents, mortgage brokers and attorneys provides a safety net for immigrant buyers in Southborough.
Economists may be worried about the proliferation of foreclosures and "short sales" nationally from rampant subprime lending, but Shifrin doesn't expect sales in his neighborhood to slow for long.
"In this market, there is a lot of pent-up demand. The ones that have done well or have some cash are able to buy those short sales and renovate them and increase the value and hopefully start the cycle all over again."
By Jay MacDonald, Bankrate.com