US Home Prices Lure Foreigners (WSJ May 27, 08)

Thanks to falling home prices and the weak dollar, attention is heating up from foreign investors. Almost one in five Realtors surveyed by the NAR last year said they sold homes to international clients between April 2006 and April 2007. More recent data isn't yet available, but according to anecdotal evidence, those numbers continue to rise.

For many foreign buyers, property in the U.S. is downright cheap. Canadians now get an 80% discount on what they would have paid for a piece of the U.S. just three years ago, when one Canadian dollar was worth just 80 U.S. cents and properties in some areas were 50% more expensive. (One Canadian dollar is now worth roughly $1 in U.S. currency.) For European buyers, whose currency carries 25% more buying power in the U.S. than it did just three years ago, today's depressed property prices are no less attractive. While Americans are discouraged by images of neighborhoods blighted by "For Sale" signs and taped-off properties, foreign buyers are much more optimistic, especially about the long-term health of the U.S. market. "The foreign buyer has an unbridled confidence in the U.S. market that is lacking in the domestic purchaser today. They view this as the bargain of a lifetime and are terribly excited about it. They understand the U.S. market is more stable. We may have down cycles, but we go up back again. They've heard there's a fire sale going on down here."

Despite all the hoopla, though, foreign buyers alone will hardly help the U.S. crawl out of the current housing mess. Unsold inventory in some areas is so abundant that it cannot be absorbed, even with increased interest from our neighbors north of the border or overseas. Foreigners can at least bring to the U.S. market what it's been lacking most in the past months: They'll provide a psychological support of confidence.