Foreign purchases of U.S. homes fell a record 21%, posing a fresh challenge to the slumping housing market, which has shown few signs of turning around.
Purchases by international buyers totaled $121 billion in the fiscal year ending in March, down from $153 billion the previous year, according to a survey by the National Association of Realtors released Thursday.
The sharp drop reflected higher home prices, a strengthening dollar and intensifying political tensions between the U.S. and other parts of the world, economists say.
“The [discussion of a] trade war or just the rhetoric against foreigners may have dampened some of the enthusiasm to buy property in the U.S.,” said Lawrence Yun, chief economist at NAR.
Chinese buyers remained the largest purchasers of U.S. homes but their purchases fell 4% from the previous year to $30.4 billion. Purchases by Canadians, the second-most-prolific purchasers, were slashed by 45% to $10.5 billion.
Existing-home sales have fallen on an annual basis in five of the past six months, buffeted by rising prices, a long stretch of low inventory and rising mortgage rates. The decline in purchases by overseas buyers is adding to the market’s woes.
“Part of that softening is foreign buyers pulling back slightly,” Mr. Yun said.
While foreigners make up a small share of the overall U.S. housing market, they have helped drive sales of higher-end properties in places like New York, California and Florida and are often more attractive than domestic buyers. Foreigners are more likely to pay in cash and bid above the asking price, challenging local buyers to come up with larger down payments and pay more.
Foreigners continued to purchase more expensive properties than most locals in the past year but they also pared back their spending habits. The median price of a residential property purchased by a foreigner was $292,400, down from more than $302,300 a year earlier. The median local existing-home buyer spent about $50,000 less. Chinese buyers continued to purchase the most expensive properties, with a median price of $439,100.
Nearly 40% of Chinese buyers bought in California, which has a large Asian community, good air quality and strong universities. But Chinese buyers recently have been unable to get money out of their country and also are concerned about growing tensions with the U.S., according to agents.
“This might be the first time in my career that I’m seeing more Chinese sellers than buyers,” said John Chang, a broker-owner at Engel & Völkers in New York City.
Mr. Chang said his clients have watched prices rise sharply in recent years and determined that now is their opportunity to “cash out.”
On a trip to China last week, he also realized that Chinese news coverage of the U.S. is spooking would-be buyers. “It’s staggering,” he said of the negative coverage, including editorials saying now isn’t a safe time to invest in the U.S. and articles chronicling real-estate developments funded by Chinese investors that have gone bankrupt.
Kerry Lynn, an agent at Douglas Elliman in New York, said she used to conduct more than half of her business with Chinese purchasers but hasn’t traveled to China in six months. She has shifted to finding local clients and helping Chinese clients sell what they already own.
Ms. Lynn said the main hurdle is that the Chinese government has tightened restrictions, allowing residents to take only $50,000 out of the country and requiring banks to report what the money is being used for. Tuition is an acceptable use but buying real estate generally isn’t.
“I have a client that bought in 2014 and they were here about eight months ago and they wanted to buy another apartment. They found something they loved and they couldn’t do it. They were nervous,” she said.
Canadian buyers, who primarily buy vacation and retirement properties in Florida and Arizona, ramped up purchases in recent years only to pull back in the past year. A strong American dollar and tensions between the U.S. and Canada over trade negotiations have driven the pullback, according to agents.
Brent Leathwood, a broker in Florida, said Canadian professional investors are taking a wait-and-see approach and retiring baby boomers are simply scaling back what they purchase.
The political uncertainty “destroys investors’ ability to make long-term investments decisions with confidence and we are seeing this uncertainty rear its ugly head,” Mr. Leathwood said.
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