Is Foreign Investment Driving the Recovery?

AMA11-25-13By several major benchmarks, the economic recovery appears to be on the upswing. The employment picture is rosier and the housing market –always the backbone of economic stability – is humming too. But a recent report by the National Association of Realtors reveals that much of that growth is fueled by foreign investment – a trend that has some industry watchers more than a little concerned.

Foreign interest in US real estate is not new. But as the housing market struggles to

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recover from the great crash of five years ago, the role of foreign investing takes on some new implications. According to the NAR, residential real estate purchases by foreigners is expected to top $68 billion in 2013. And that has some industry professionals worried that the apparent health of the housing market is due to that influx of foreign money – not an economic recovery that lets local buyers make those purchases.

One reason for the popularity of US real estate among investors around the globe is that it’s relatively easy to buy, compared to some parts of the world. Leaving aside the much publicized multibillion-dollar housing purchases made by wealthy foreigners and their children, virtually anyone who wants to safeguard funds by putting them into US properties can buy with only a few legal hoops to jump through.

Generally, foreigners can buy property by meeting the same requirements as US citizens. With proof of income and demonstrated good credit they can get a mortgage. Unless they’re already legally eligible to spend time in the country, they’ll need documentation to remain in the country for the duration of the transaction and paperwork for filing US taxes and getting any other permits or approvals needed to close the deal.

Foreign investment in the US may be easy, but is it good for the housing recovery? According to the NAR, those foreign funds stimulate a housing market that still runs sluggishly in some areas, and boost sales of properties that aren’t being snapped up by local investors and residential buyers. What’s more, these investments have a ripple effect throughout the economy, sending money to a variety of services and suppliers. And they stimulate the already booming rental market by making more dwellings available.

All these things offer a clear boost to the housing recovery. But some real estate professionals also point out that foreign purchases create competition for American investors and homebuyers, shutting them out of the process if they can’t cover the purchase in cash or make a large down payment. And, if these foreign buyers pull out of the US property market, there may not be local buyers able to take their place, which could trigger another housing collapse.

For now, though, interest in US real estate remains high in many parts of the world, attracting buyers large and small and contributing billions to the recovering housing market. But for those willing to take Jason Hartman’s advice to diversify holdings and invest wisely, a healthy housing market benefits all investors, both local and foreign. (Top image:Flickr/PaperCat)

The American Monetary Association is the source for financial and monetary policy news you can use. Read more from our archives:

Ten Quotes In Praise of Property

When Banks Say No, Private Loans Open Doors

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