With US borders reopening, domestic buyers set to stay ahead of competition from foreign investors

The United States has reopened its borders to vaccinated international travelers from 33 countries, a development that is expected to have a significant impact on real estate.

Throughout the Covid-19 pandemic, investments by foreign buyers in US real estate have declined due to the difficulty of travel. A report by the National Association of Realtors found that between April 2020 and March 2021, the number of residential properties purchased by foreign investors decreased by 31%, compared to the previous 12-month period.

“Home buying by foreigners has just collapsed,” said Lawrence Yun, chief economist of the National Association of Realtors. “It’s such a big expense, and people want to see the homes in person before they make a purchase. If they cannot enter the country, they will simply postpone the decision. But now we expect foreign purchases to resume here in the United States ”

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This expected influx of overseas investors may make domestic buyers question whether they are ready for even fiercer competition. In many markets, inventories are already low and demand high, contributing to a 13% increase in home prices since October 2020 nationwide.

Cities like Miami, New York, Seattle, San Francisco and Los Angeles have long been preferred destinations for international buyers, Yun said, so domestic buyers in those markets may soon face a more difficult time. with the return of foreigners. Local buyers should consider acting quickly to avoid increased competition and price appreciation.

“We are in a period of high demand with low stocks. The return of international buyers will be just one more positive factor in New York’s robust real estate market, ”said Parisa Afkhami, agent at Warburg Realty in New York. “With low inventories, low interest rates and the influx of new buyers into the market, it seems like now is the right time to act quickly. “

The impact of the return of international buyers

After a wave of buying activity this spring and summer that has led to bidding wars and price appreciation, there are indications that the US housing market is cooling. In April, for example, Realtor.com found that the prices of active ads were up 17.2% from the previous year; in October, the year-over-year appreciation had fallen to 8.6%.

It’s still a sellers’ market, however, and this slowdown could go away in some cities once international buyers step into the fray.

“The market seems to calm down a bit, and some domestic buyers may feel that there is less competition and that they can negotiate for better prices,” Yun said. “Foreign buyers suddenly appearing could get rid of this. They tend to buy on cash, which is more attractive from the seller’s point of view and poses problems for domestic buyers.

Foreign investors are likely to increase demand for particular types of real estate products. Domestic buyers looking for new luxury developments with lots of amenities, for example, may face increasing competition from overseas buyers, who buy these units as a pied-à-terre and investment because of their good quality. rental prospects.

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“Foreign buyers tend to look to new developments in New York,” said Pierre Debbas, Managing Partner of Romer Debbas LLP. “We have had a glut of new inventory in the luxury condo space, and because condos have a level of negotiability and travel restrictions are lifted, I expect demand to increase and inflows of money from abroad. ”

New York City’s popular rental market and the predominance of upscale new development offerings over other major cities make it particularly attractive to foreign investors. Interested buyers should note, however, that since the lockdown ended, interest in luxury housing has increased, and 2021 has seen the most luxury contracts signed of any year on record.

“Real estate prices in New York are still low compared to other world capitals such as London, Hong Kong and San Francisco,” Ms. Afkhami said. “We have already seen an increase in activity, including inquiries, FaceTime screenings and upcoming dates in the coming month.”

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Strategies for domestic buyers

While foreign investors are already making arrangements to visit properties in hot US markets, domestic buyers in those cities must begin to strategize on how they will stand out in a revival of intense competition.

Many domestic buyers have been looking for a home for quite some time and their knowledge of a given market could be an advantage over international buyers who have just entered the fray. These foreign buyers may need to take more time to consider their options, while locals are better prepared to bid right away.

“Domestic buyers are ahead of the curve because they have had time to shop over the past few months,” said Ethan Assouline, a broker with Compass in New York. “Now if you see something you like, you can jump on it. ”

Domestic buyers should also be aware of the type of housing that tends to attract foreign investors and strategize accordingly.

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“Foreign buyers tend to settle more in condos, relatively speaking,” Mr. Yun said. “From their point of view, it’s a simpler investment.

These investors are also attracted to large cities like New York and San Francisco. National buyers looking for new developments in these markets therefore have all the more reason to act quickly. On the other hand, by opting for different types of housing products, such as co-op units in New York, or investing in smaller cities, they can avoid some of the renewed competition from international buyers.

Where foreign competition is fierce, domestic buyers face significant challenges: Foreign investors are more likely to make cash offers and are willing to forgo the unexpected.

“In a bull market, cash and unconditional trades are essential, and sellers will prioritize this,” Mr. Assouline said.

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But even in hot markets, buyers may be able to identify pockets of relative affordability, where they are less likely to face bidding wars. In Northern California, for example, the Napa area currently has more inventory than neighboring counties, said Jeff Samuels, a broker in the agency’s office in Northern California. There, buyers can expect to encounter less competition and even the possibility of discounts.

“We are already at a time when cash is king, so the domestic buyer might want to get ahead if more investors arrive,” Samuels said. “If you have some flexibility and want to know where your best opportunities are, find a real estate agent who pays attention to supply and demand, and knows who is in control now and how much control they have. ”

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