Foreigners riding the U.S. real estate market up
Favorable exchange rates, affordable home prices and relatively inexpensive financing continue to drive international home buyers to the United States, and lenders are taking notice.
At HSBC, foreign-national mortgages accounted for about 35% of its U.S. home lending business so far in 2014, according to Peter Alongi, senior mortgage manager at HSBC’s New York City office. Alongi said the bank has consistently experience year-over-year increases.
International home buying in the U.S. increased 35% between March 2013 and April 2014, with Chinese buyers outpacing the rest. The Chinese spent $22 billion of the total $92.3 billion international home buying volume during that time period, according to the National Association of Realtors (NAR). Overall, foreign clients made up about 7% of transactions in the $1.2 trillion U.S. residential real estate market.
Other lenders are showing interest, too. Mega Capital Funding, a Calabasas, Calif.-based lender, started lending to non-residents in June after seeing rising demand from Chinese buyers, according to Bloomberg. Orlando, Fla.-based FBC Mortgage increased its mortgages to international buyers by 65% in 2014 compared to last year.
“There is still plenty of opportunity in the U.S. real estate market,” said Alongi. “Foreign clients are buying in markets on the move, such as Manhattan and Miami, which have really heated up. They want to ride the real estate market up.”
International home buyers are helping to fill to a void left by Americans facing issues like affordable credit and high mortgage premium costs, according to NAR. Julián Castro, secretary of HUD who is campaigning for a broader access to mortgages, has said, “People who during normal times would be able to get a loan, these days are simply shut out of the market.”
Year-over-year sales volume of existing homes, which represent nearly 90% of the market, has been consecutively down for 10 months in a row. NAR reported that contracts to buy previously owned homes fell 1% in August, partially due to investors pulling out of the market.
International home buying has affected the residential real estate market in a positive way, according to Alongi. “It’s more home sales and more investment in the U.S,” he added. “It was a struggling environment for many years in most markets.”
Because of its presence in Asia, a majority of HSBC’s foreign-national mortgage business is to the Chinese. Alongi said the group is interested in homes that are located in the West and in New York City as many of their children attend schools in The Big Apple.
NAR reported Chinese buyers are mostly flocking to Southern California, with Los Angeles, San Francisco and Irvine as their top three choices.
The Chinese are the fastest growing group of foreign home buyers in the U.S., according to NAR. In China, mortgage rules only recently loosen. Previously, buyers of second homes were required to have to make a minimum 60% down payment to qualify for a loan. Now, such buyers can make a down payment of 30%.
Alongi said HSBC is also seeing an uptick of home buyers from South America, who are particularly drawn to Miami. Approximately 55% of foreign home buying activity in the U.S. from March 2013 to April 2014 occurred in four states with Florida leading the way at 23%, followed by 14% in California, 12% in Texas and 6% in Arizona.
In Miami, the HSBC’s average loan size is $500,000 and for the Manhattan market it’s around $1 million. The bank will loan up to $3 million on a single home purchase to a foreign client and typically requires 25% down.
Alongi said one of the biggest challenges mortgage professionals face today in foreign-national home lending is not knowing their clients. “I think with other banks trying to work in this business, the challenge is really understanding the customer and understanding that they don’t have traditional U.S. credit.”
Mortgage financing tends to be a problem for international clients due to a lack of a U.S.-based credit history, lack of a Social Security number, difficulties in documenting mortgage requirements and financial profiles that differ from those normally received by financial institutions from domestic residents, according to NAR.
International buyers are more likely to make all-cash purchases when compared to domestic buyers. In 2014, nearly 60% of reported international transactions were all cash, compared to only one-third of domestic purchases.
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