As the United States' neighboring countries lose their economic edge in the nation's home market, analysts at Capital Economics suggest China might soon become the biggest foreign buyer of U.S. housing.
In a report released earlier this week, the National Association of Realtors (NAR) found foreign purchases of U.S. real estate surged in the 12 months ending in March to $92.2 billion, an increase of 35 percent over the prior period.
In a note to clients, Paul Diggle, property economist at Capital Economics, insisted that foreign contributions to the housing recovery remain marginal even with the increase.
"Foreign buyers remain relatively peripheral to the housing recovery for a number of reasons," Diggle wrote. "For Canadian and Mexican buyers ... currency movements have compounded the impact of rising house prices, reducing the extent to which US housing looks undervalued."
Meanwhile, income growth in China has made U.S. housing a relatively cheap investment.
From April 2013 through March 2014, Chinese buyers accounted for 16 percent of foreign home sales, up from 12 percent in 2013 and just 5 percent in 2009. In dollar volume, China's share is higher, accounting for $22 billion—about 24 percent—of sales during that period.
"Put another way, the value of homes bought by Chinese buyers in the US has increased from $1.2 [billion] to $7.5 [billion], or slightly more than 500 percent, over five years," Diggle said.
While that's still only a small fraction of the more than $1 trillion in total home purchases over the past year, Diggle adds that the influence of Chinese buyers has climbed as high as 35 percent of all sales in California and a further 28 percent in Washington, New York, Pennsylvania, and Texas.
That concentration extends even further in the market for single-family homes selling for more than $500,000 in suburban areas.
Even with tightening monetary policy keeping foreign demand down in the near future, Diggle predicts Chinese buyers could outweigh Canadians as the largest source of foreign demand within five years should trends continue.
"The strength of Chinese demand is another reason to watch closely developments in the Californian housing market, where housing is now no better than fairly valued at the State-wide level and starting to look frothy in a number of metros," he concludes.