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Can Foreign Buyers Save the Housing Market?


Many argue that homes prices are still too high, so we should keep a lid on foreign buyers to let prices keep slipping back to more affordable levels. But are prices really that high?

The United States may be in danger of losing its status as "the land of opportunity," but depressed prices have been attracting foreign buyers ever since the housing market went off the rails. Now, Washington wants to make it even easier for overseas investors to park cash in American real estate.

In a rare show of bipartisanship, last week two Senators put forth a bold plan to inject cash into the ailing housing market. According to the Wall Street Journal, Chuck Schumer (Democrat, NY) and Mike Lee (Republican, Utah) co-authored a set of immigration measures that included allocating special residence visas for foreign nationals who spend at least $500,000 in cash on residential real estate.

The visas would not let buyers work in the US, but would allow them to spend more time here and compliment other programs that allow wealthy foreigners to earn visas by investing in job-creating businesses. Proponents argue the program would be a much-needed shot in the arm for high-end housing markets, in addition to attracting more wealthy foreign nationals to bolster consumer spending. Opponents, however, argue that the last thing we need is an artificial inflation of home prices that pushes ever-more Americans out of the housing market.

The plan, despite having some drawbacks, has merit.

Housing demand remains tepid, and far better to bring money in from overseas then recycle tax dollars that could be better spent on infrastructure, scientific research or any number of worthy economically beneficial expenditures. Further, contrary to xenophobes who seem to think the only way to make money outside the US is by peddling narcotics or human beings, most wealthy foreigners earn their money through legitimate business. At a time when our economy badly needs fresh jobs, an influx of foreign ingenuity would be a boon. Would a few crooks slip through the standard criminal background checks for visa approval? Sure, but how many drug dealers or pirates want to register with the State Department anyway?

Banks like Wells Fargo (WFC), Bank of America (BAC) and JPMorgan Chase (JPM) would benefit, as wealthy foreign nationals spending more time in the US would encourage them to set up domestic bank accounts and use other local financial services. Apple (AAPL) and other technology firms could see a pickup in domestic demand. Even if the cash is originated overseas, it would be spent here, creating more demand for employees. And homebuilders like Toll Brothers (TOL), PulteGroup (PHM) and KB Home (KBH) may finally be able to unload some inventory at a time when new home sales are at dismal levels.

Many argue that homes prices are still too high, so we should keep a lid on an already growing pool of foreign buyers to let prices keep slipping back to more affordable levels. But are prices really that high? A recent Deutsche Bank study found that in the nation as a whole, it's actually more expensive to rent than to buy. This certainly does not hold true everywhere, but if you are expecting another cascading collapse in home prices, you are going to be sorely disappointed -- the data just don't add up.

Opposing foreign home-buying is to ignore that we live in a global economy. Money flows more easily across borders, and Americans are being forced to compete for resources with an increasingly educated global population. So why not embrace our new reality rather than stubbornly erect more rules to keep smart, successful people out of our country just because they happened to be born somewhere else?

Once upon a time this country thrived on competition; we believed that we could outwork, outthink and out-innovate the world. And for a while, we did. But the world is catching up. We are falling behind. Building more fences, or bigger ones, is not the answer. So I say bring on the foreign buyers. I welcome the challenge, the competition -- maybe it's a kick in the pants this country sorely needs.

For in-depth local housing market analysis check out our Housing Market Report and download the report for your region.

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