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October 2011

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BY LIZ ENOCHS WHEN VICTOR AVRAMENKO drives through the sunbaked rows of stucco houses in the west- ern suburbs of Phoenix — where he bought his first American property two years ago — he doesn't see the job cuts, slashed incomes and foreclosures that have devastated neighborhood after neighborhood in this city, which was once a real estate speculator's dream. He sees profit potential. Avramenko and his wife, Teresa, purchased five houses in the Phoenix area over the past two years, and they plan to buy another three to five. It's their retirement plan. They rent out four of the five, living in the other one when they fly down from Alberta, Canada, every couple of months to golf, shop and take in pro baseball, basketball, football or hockey games. "Compared to a lot of areas, there's a large population base, and with the downturn we felt there were some good opportunities for getting what your dollar's worth," said Avramenko of his decision to invest in Phoenix real estate. Maricopa County, which includes Phoenix, is the fourth largest county in the nation, with more than 3.8 million residents. The population has grown almost 25% over the last decade. Of course, Avramenko's dollar — also known as a loonie — goes further than the greenback. And it goes even further than it did just a couple of years ago, when the family practice doctor started looking at properties in the Phoenix market. Back then, a Canadian dollar bought just 78 cents American. These days, one loonie gets Avramenko $1.02, making his cash worth 31% more than it was two years ago. At least, when he's south of the 49th parallel. The dollar's weakness, coupled with de- pressed home prices, has made the U.S. an attrac- tive destination for well-heeled foreigners like Avramenko looking for a place to park their cash and reap a healthy return on investment. And real estate brokers say these Canadians, Argentinians, Russians and Chinese who are snapping up condominiums, foreclosed proper- ties, and even new homes in select markets, have — at least in some cases — stabilized prices and inventory. They haven't done much to boost business for mortgage lenders, though, because many of these transactions are in cash. Real estate agents and housing market re- searchers say tightened credit standards, in- creased regulatory constraints and what some buyers view as excessive red tape have prompted these overseas investors to use cash. But foreign buyers won't be enough to bring America's housing market back to life, says a re- port from Capital Economics. "Over the next five years, overseas demand will not be strong enough to drag the housing market out of its current malaise," according to Paul Dales, senior U.S. economist for the Toronto- based firm. "The increased demand that would be needed to really make a dent in the market is too large to be plausible." DISSECTING THE NUMBERS While the available data show the share of foreign buyers in the U.S. residential real estate market is growing, the numbers are incomplete and may substantially understate the effect in- ternational investors are having, some residen- tial market participants say. "The data on this is pretty ropy, really," Dales said in an interview. Capital Economics, which gathers data from public sources such as the Federal Reserve, puts total foreign buyer activity for the 12 months ended March 31 at $30 billion, 4.6% lower than a year earlier. The National Association of Realtors, on the other hand, drawing from a survey of roughly 1,000 real estate agents, says foreign buyers bought $41 billion worth of American homes over the same period, and immigrants who have moved to the U.S. in the past two years purchased another $41 billion. That $82 billion is a 24% increase from a year earlier, according to NAR, but it only represents about 7.7% of the nation's $1.07 trillion market of existing homes. NAR data doesn't include New York City be- cause the Real Estate Board of New York is not an affiliate of the huge trade group. "It's the largest foreign investment market in the country, and they don't have any data on it," says David Michonski, chairman and CEO of RealShare International, a holding company that runs Coldwell Banker residential and commer- cial franchises in New York. At his firm, where he manages about 30 peo- ple, foreign investors make up about 10% to 15% of the business, Michonski said. And because the New York City market is dominated by all-cash transactions, foreign buyers have been "an enor- mous prop" to the market, he said, with Chinese and Russian investors the most active. Howard Blum, a real estate investor, publisher of financial newsletters, and entrepreneur, says the numbers are much higher than either NAR or Capital Economics estimate. OCTOBER 2011 67

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