U.S. housing market in recovery...thanks to China?

It's not just institutional investors that have been propping up the U.S. housing market. Foreign buyers are also buying in. The National Association of Realtors is reporting that international buyers accounted for $92.2 billion of U.S. home sales during the 12 months ending in March 2014-- 35% higher than the same period a year earlier.

"This is actually good news ... and is helping the U.S. housing market recover although it's not helping it recover nationwide," says Rick Newman, senior columnist at Yahoo Finance. "This tends to be in coastal markets: Los Angeles, San Francisco, New York, to some extent Florida."

The NAR reports that four states -- Florida, California, Texas and Arizona -- accounted for 55% of foreign purchases of U.S. homes, with Florida alone grabbing a 23% share. Europeans are generally attracted to states with warmer climates such as Florida and Arizona while Asian buyers tend to favor the West Coast in part because they're attracted to states like California with large IT companies, the NAR reports.

Just over half of these buyers came from a handful of countries: Canada, China, Mexico, India and the U.K., according to the NAR. China led in dollar volume of purchases: $22 billion, while Canada had the largest share: 19%. About 60% of foreign purchases were all cash, according to the NAR.

"The Chinese real estate market is overheated. It seems ready to bust...so they want to get their money someplace that seems more stable," says Newman. Many Chinese buyers are investors but some are coming to the U.S. to live so their kids get a U.S. education and learn English, says Newman.

Although foreign purchases of U.S. homes have helped revive the U.S. housing market they also "might have masked what's really going on in the housing recovery," says Newman. "It tells us where that housing recovery came from last year." And it helps explain why the housing market is slowing this year.

"There are a lot of markets that haven't recovered as much as these hot coastal markets have," says Newman. "A lot of people are struggling to get a down payment...They're not earning enough money...They can't get a bank loan...These things are still holding back the housing market...It's going to take a few more years until we get back to normal."

By Bernice Napach July 9, 2014 12:12 PM Yahoo Finance