We might not be missing it right now, but in the past 14 months, the US has enjoyed a hot housing market and massive house price growth without a class that, in a few key cities, takes up as much as 8% of the local purchase market. That’s a buying class that typically buys luxury condos in big cities, and could be driving markets that have been harder hit since the pandemic began. Trouble is, so many of them are being kept out of the market.
That buying class is, of course, foreign purchasers. Due to travel restrictions and ensuing lending restrictions, foreigners have been kept out of key markets they normally play a significant role in. While some investment buyers have made purchases, many looking to buy a stateside pied-a-terre have avoided entering the market simply because they can’t see, or use, the property right now. However, as the pandemic starts to come under greater control both domestically and in many foreign countries, we can likely expect travel to resume – and with foreign visits will come foreign buyers. For mortgage professionals, especially those living in urban markets, these buyers could represent a real opportunity for post-pandemic growth.
“In a typical year, my business is somewhere between 5% and 8% foreign purchasers. In the last year, it’s been less than 1%,” said Melissa Cohn (pictured), executive mortgage banker at William Raveis mortgage. “With the travel restrictions imposed during the pandemic, it’s very difficult for foreigners to even view these properties. Who’s going to buy a pied-a-terre in New York that they can’t see and can’t stay in.”
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Cohn explained that there are a number of hurdles to be overcome before the foreign buyer market can return. First and foremost, travel restrictions have to be lifted. While the pandemic seems worse than ever in places like India right now, many other countries have already begun to turn the corner and we may see more travel resuming this summer. Lending restrictions on foreigners also have to be lifted. While some lenders have kept their programs online, many have taken them off. Cohn agreed, too, that given how hot the domestic housing market is, many banks and lenders might not bother to reimplement a foreign buyer program immediately after travel restrictions are limited. However, Cohn believes that any cooling in the housing market will send lenders flocking to foreign buyers and the premiums they pay on loans.
Once these restrictions are lifted, she believes, the immediate benefit will be felt in big city markets and luxury asset classes. The outlook for cities like New York, Miami, San Francisco and Los Angeles will likely improve when well-heeled foreign buyers start making purchases again.
As mortgage professionals look to capture these buyers as they re-enter US markets, Cohn advises that they learn as much as they can about the different foreign products available. Brokers in particular will have an advantage if their lender partners still offer foreign buyer loans. With that knowledge and product-set on-hand, mortgage pros can approach realtors and referral partners with a unique knowledge base that those partners can use to secure more foreign deals. They should be doing this, she said, because of the scale of opportunity lying offshore.
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“Look at the percent of foreign buyers represented in the marketplace prior to the pandemic,” Cohn said. “In Miami and New York City they represented somewhere between 8% and 9% of buyers – that’s a huge segment of buyers to pay attention to. If you’re a mortgage banker or broker, and you have access to lenders that do financing for foreigners, it’s a great way to distinguish yourself.”