Because of the housing market meltdown, foreign governments and banks are shying away from bonds backed by American home loans. But individual foreign buyers are taking advantage of the crash to snap up U.S. bargains at a record clip.

When housing was flying high, foreign entities were purchasing the lion's share of the mortgage-backed securities packaged by Fannie Mae and Freddie Mac, the two quasi-government agencies that help keep the housing finance system flush with cash by buying mortgages from Main Street lenders.

Now, with Fannie Mae and Freddie Mac in conservatorship and their futures in question—and with millions of homeowners underwater on loans held by Fannie Mae and Freddie Mac—the foreign share of the mortgage-backed securities market is just a fraction of what it once was. Instead, foreigners are gobbling up individual properties.

According to the latest tally by the National Association of Realtors, foreign clients purchased $41 billion worth of stateside houses and apartments during the 12-month period ending in March 2011. That's roughly the same as the previous year.

But add in the $41 billion spent by immigrants who moved here within the last two years and individuals with visas of more than six months, and the total is $82 billion worth of U.S. residential real estate taken off the market by international buyers, up from $66 billion the year before.

The demand for American real estate is so strong that last fall the National Association of Realtors launched an international version of its listing website. Now, the 4.4 million properties displayed on Realtor.com can be viewed more easily by buyers from practically any place in the world, and in almost a dozen languages.

Back in the 1980s, when investors from Japan and other countries were buying large amounts of commercial real estate, including such iconic properties as the Pebble Beach Golf Links in California and Rockefeller Center in New York, there was fear in some quarters that America was for sale to foreigners.

There's no such outcry this time around, if only because the foreign share of the domestic housing market is but a small sliver of a $1.07 trillion pie. And in markets where foreign buyers are most active, their pesos, pounds and rupees are being welcomed with open arms because they are helping to unclog the logjam of unsold and foreclosed houses, a logjam many believe must be cleared out before residential real estate can regain its equilibrium.

"At a time when there are a lot of homes on the market and an overhang of distressed properties, an active foreign demand relieves these worries," says Michael Fratantoni, vice president of research at the Mortgage Bankers Association.

While most states have some international purchasers, the National Association of Realtors says foreigners are buying largely in four states—Florida, California, Texas and Arizona. Of those, only Texas is not being held back by a glut of unsold inventory.

More recent data square with the association's findings. According to DataQuick, nearly 55% of all U.S. residential real estate sales to foreigners between May and November last year were in Florida, and more than 17% were in Arizona. Nearly 6% were in California, and nearly 5% were in Nevada, another state hit hard by the housing downturn.

According to an analysis of Internet searches of U.S. real estate by foreigners in last year's fourth quarter by Point2, a real estate technology company, Florida holds the most interest, followed by Arizona, Nevada and California.

None of this is terribly surprising. Not only are housing prices languishing in these spots, but most people prefer warmer climates. What may be surprising, though, is that many foreign buyers are not coming to the States from that far away.

While the National Association of Realtors counted buyers from more than 70 countries, Canada accounted for nearly one-fourth of all international sales, followed by China at 9%, and India, Mexico and the U.K., each with a 7% share. Together, these five countries accounted for 53% of the transactions.

Canadians have always been big investors in American real estate, especially in warmer climates. But Saul Klein of Vancouver-based Point2 says interest is also keen among Canadians in states such as Michigan, which is close to home. Michigan has been hit particularly hard by the downturn and, therefore, offers "very attractive" investment opportunities, Klein says.

But pure investment isn't necessarily the main driver of the decision to buy houses in America, even if the buyers expect to use them only for vacations for family and friends. Rather, it's foreign buyers' desire to protect their money from the ravages of their own economies.

Even though the value of the U.S. dollar isn't what it once was, most foreigners believe America is the "best place in the world" to park their money, says Faith Xenos of Singer Xenos, a Coral Gables, Fla., wealth management firm that works with a lot of Brazilian clients. "There is a certain allure and prestige to being a U.S. investor. So when people do well, they put their money in American real estate or a Swiss bank account," Xenos says.

Most foreign purchases are in cash, if only because the long-term, big-ticket borrowing arrangements common in this country are, well, foreign to foreigners.

According to Stephen Davis, an immigration lawyer in Jacksonville, Fla., foreigners can purchase homes in the United States under several different visa programs. But to grease the wheels a bit further, Sens. Charles Schumer, a New York Democrat, and Mike Lee, a Utah Republican, have introduced legislation that would grant three-year visas to those who spend at least $500,000 in cash on at least one house.

Noting the strong desire to own homes in places where the inventory of properties for sale is currently bloated, Schumer said of the measure, "This is a way of letting them live here and solving our housing crisis."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.