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International buyers push up US home prices at the top end of the market

The overall housing market in the United States is not strongly affected by international buyers but they do have considerable influence at the top end where they are buying luxury properties.

The Zillow home price expectations survey, conducted by Pulsenomics, asked more than 100 house experts and economists about the place of international buyers.

They concludes that they have a modest effect on inventory and home values generally but at the high end of the market they have a major impact on prices.

Since the housing crash, housing affordability has been a significant issue for many Americans. Rapidly increasing rents had the dual effect of financially incentivizing homeownership and making it harder to save for a down payment.

At the same time, lagging new construction and high negative equity rates have kept inventory low, pushing up home values and making it harder to find an affordable home. Increased activity from international buyers of US real estate has also fuelled concerns about affordability.

Most of the panellists surveyed expect that international buying activity will decrease or stay at the same level in the coming year, signalling that outside influences aren’t likely to be the most significant driver of the housing market over the next year.

Expectations for overall home price growth are stronger now than they were a year ago. A year ago, panellists predicted that home prices would rise 3.4% in 2017. Now, they expect to see a 4.8% increase. Their forecasts for home price growth in 2018 are also more optimistic now compared to last year.

‘International buyers are popular scapegoats for rising real estate prices and shrinking inventory, but domestic factors have had a bigger influence on the housing market, much more so than demand from overseas,’ said Zillow chief economist Svenja Gudell.

‘Older millennials are reaching prime home buying age, increasing demand for housing, but we are still well behind historical norms when it comes to building new homes. The fact that economists and experts are revising their expectations upward for future home value growth is a sign that these trends will continue to exert upward pressure on prices going forward,’ she added.

The Zillow report points out that some cities in other nations with expensive housing markets, including Vancouver, Canada, Paris, and Sydney, have introduced policies in attempts to limit international home buying activity.

However, most panellists agreed these measures are unlikely to affect housing affordability, or may even be counterproductive. Only about 20% of respondents think these policies are an effective response to improve housing affordability.

‘On the heels of last year’s nearly 7% national home value appreciation rate, the prospect that prices will increase less than 5% overall this year might be dispiriting to some,’ said Pulsenomics founder Terry Loebs.

‘Yet, 4.8% is not only well above the historical average annual gain, it’s the most optimistic projection for 2017 that we’ve seen from our expert panel over the past five years. Although most pessimistic experts still expect a sharp slowdown to commence in 2018, even this group anticipates home values to increase an average of nearly 4% this year,’ he explained.

‘Given these projections, it’s a pretty safe bet that US home equity growth will exceed $1 trillion for the sixth consecutive year, and continue to buttress consumer confidence and household spending in 2017, especially if more of today’s renters can afford the transition to home ownership,’ he added.