Foreign Investors Will Not Save U.S. Housing But May Help Some States

The combination of declines in home prices and in the value of the dollar is making U.S. homes very affordable for some foreign buyers, according to a ""Capital Economics"":http://www.capitaleconomics.com report released Thursday. However, the research firm says foreign demand is not likely to bring recovery to the American housing market in the near future.

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The 33-percent decline in housing values since the beginning of 2006 translates to an even greater decline when the dollar value is compared with some foreign currencies, such as the Chinese renminbi, Canadian dollars, and the euro.

In fact, for Canadians, the U.S. homes are more affordable now than any time in the past 35 years.

The 33-percent decline represents a 45-percent decline when converted to Chines renminbi and a 43-percent decline for Canadian dollars.

While these percentages relate to average prices, ""if overseas buyers are attracted to the many foreclosed properties, which tend to be sold with an extra discount of around 25%, then US housing looks even more attractive,"" states the Capital Economics report.

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For the 12-month period ending March 2011, international buyers made up 3.8 percent of existing home sales values. This is down from 4.6 percent during the same period last year.

The decline may be more a result of falling prices and the lower dollar value than a decline in foreign interest. According to Capital Economics, the actual number of homes bought by foreign clients has either fallen slightly or not at all.

Similarly, the percent of Realtors who worked with at least one overseas client for the year remained the same as the previous year - 28 percent.

Nevertheless, restoring international sales to their 1998-to-2010 value levels would require a fivefold increase, which is highly unlikely, especially in the short term, according to Capital Economics.

While foreign investors may not restore the U.S. housing market over the next few years, they may boost some states' real estate markets.

According to NAR, 58 percent of all international transactions in the 12-month period ending March 2011 took place in Arizona, California, Florida, and Texas.

The lion's share - 43 percent - occurred in Florida and California.

Florida is seeing an increase in Canadian buyers, while California is experiencing increasing interest from China.

Florida's high number of foreclosures - and thus high number of discounted homes - is likely part of the draw for Canadian buyers.

Barring another global financial crisis, foreign investing in the U.S. housing market is likely to increase over the next 10 to 20 years. However, the increase over the next five years will not be enough to recover the market.