The US property market rebounds

on Friday, 9 November 2012. Posted in , ,
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AND WHAT TO DO ABOUT IT

Time-To-RecoverAlthough many people are still arguing about the “real cause” of the financial crisis, usually to suit their own conspiracy theory, the humble truth remains that it was an old fashioned property boom and bust that was true cause and starting point.  We have believed, since early last year, that a recovery in the US housing market is imminent, and we are starting to be proven correct.Let’s however put this in context

The Housing Construction Boom & Bust

Prior to the financial crisis housing construction, which normally tracks at around 1.2 million dwellings per year, suddenly zoomed to almost 2 million per year.   An amount far beyond demand.  The crash however pushed construction down to a mere 400,000 dwellings per year, far below demand.  But what is demand?

US construction

The Demographic Foundations of Demand

The United States grows its already sizeable population at about 3 million people per year, give or take.  This equates to housing demand of about 1-1.2 million dwellings per year (with household size about 2.3 people on average), depending on your preferred housing formation statistic.   This helps explain why supply was too much, and now more recently, not enough for underlying demand more recently.  It is why the recovery has commenced.

US POPULATION

The Recent Recovery

Many different news reports in recent months have reported that the US housing market is indeed starting to rebound.   This is based on many different trends including the leading index, the Case Shiller index.

Sales of existing houses has fallen.  That would often mean a decline in confidence, but many such as this Bloomberg article.

The rise in property prices has many impacts.  The main is on existing and older mortgages as this quote points out.

“More than 1.3 million homeowners who were “underwater” on their mortgages — the owners owe more than their property is worth — have moved above the break-even point on their homes, according to CoreLogic of Santa Ana, California.”

Still, the improving housing market hasn’t yet helped the wider economy catch on fire as this article points out.  Still, as less mortgages are underwater, more renovations happen and new construction picks up, it certainly can’t hurt.

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How to invest

It is possible to buy a property in the US as a foreigner, but keep in mind that as a non-resident alien a mortgage is almost impossible for most purchases.  Also the US has higher property prices than most places, and renting your property will require your involvement in finding and helping manage your agent, so it’s not the low involvement way to invest.

You could invest in a US homebuilders Index fund, but we must point out these funds have already had strong rises of more than 100% from their lows, and are no longer cheap.  We do work with some distressed property funds, which are a very good hands-off solution as well as property syndicates which can start as low as $10,000 USD minimum investment.   Contact us for more information.

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