MAGAZINE 50 SPOTLIGHT

U.S. real estate is ripe for the picking, assuming you aren’t buying in U.S. dollars. Joan Gill suggests you get in now, way ahead of the upturn

Just three or four years ago America was in the midst of a decade-long housing boom, with new developments and even new neighbourhoods springing up all over the country. Today, those same houses that often went for US$700,000 (HK$5.5M) are now on the market for as much as 40 percent less.

Of course what this means for the canny international investor is that there’s a killing to be made in the U.S. real-estate market. Most U.S. citizens simply don’t have the funds to capitalise on this buying opportunity but buyers from overseas can get their hands on property at bargain prices as their currencies get more value against the plummeting U.S. dollar. Factor in the all-time low asking prices and you’ve got one of the best deals of the century (however young it may be).

The combination of the low dollar and the U.S. housing crisis has led to some homes being marketed for a discount of 50 percent or 60 percent from just two or three years ago. People who can afford to have pulled their homes off the market completely, choosing instead to rent or try to “wait out” the sub-prime crisis.

In the last year alone, the number of homes sold in the U.S. has dropped 30 percent. This means that a potential buyer really has the advantage. Sellers are so frustrated from months of no sales that they are gladly accepting offers significantly less than their (already discounted) asking prices. Aside from bargaining for a cut price, buyers can demand that modifications are made to a property prior to the sale.

In Southern California alone, housing prices have dropped 19 percent — in the last year. The last time values were this low was during the housing decline in the early 1990s; but that slump occurred gradually over six years. Not only are land and houses up for grabs, but some wealthier foreign investors are beginning to take an interest in large-scale commercial projects and condominiums.

Many experts are predicting a long road ahead, and say that the market has yet to hit rock bottom, but this pessimism may in fact be short sighted. While the future of the housing market may look gloomy for sellers, it is still a good idea for buyers to act quickly.

A failing economy has always been bad for the U.S., but good for a presidential hopeful. Statistically, the Dow Jones Industrial Average grows by 9.1 percent in election years, as opposed to just 7.2 percent in non-election years. Analysts are predicting a strengthening dollar by the end of this year, so these crazy-low prices may only be around for another few months.

However, once property has been bought, investors will be able to reap the benefits for years to come. If you buy now and the dollar does bounce back soon, the actual value of your home will escalate. You would be able to ask higher rents from your tenants, or a larger asking price should you choose to sell. Either way, you will see a significant increase in your investment over the next couple of years.

Although this sounds like great news, it’s clearly not such a happy story for U.S. citizens. Many homeowners are being forced to sell their homes for thousands of dollars less than the purchase price. Other families are facing repossession because of their inability to pay their (sub-prime) adjustable mortgages. It’s a grim picture: an estimated 17 percent of U.S. homeowners actually owe more in loans than what their houses are worth and repossessions are up 90 percent in some areas.

As a result, strange days are upon the residents of many a suburban cul-de-sac. Once tidy yards have become overgrown, as the houses they front have become vacant. Graffiti, broken windows and other markers of decay have multiplied. Signs of physical and social disorder are spreading.

In the first half of last year, residential burglaries rose by 35 percent and robberies by 58 percent in suburban Lee County, Florida, where one in four houses stands empty. Charlotte’s crime rates have stayed flat overall in recent years, but from 2003 to 2006, in the ten suburbs of the city that have experienced the highest foreclosure rates, crime rose 33 percent.

The decline of these neighbourhoods is usually attributed to the sub-prime-mortgage crisis, with its wave of foreclosures. And the crisis has indeed catalysed or intensified social problems in many communities. But the story of vacant suburban homes and declining suburban neighbourhoods did not begin with the sub prime. Analysts say a structural change is under way in the housing market — a major shift in the way many Americans want to live and work.

In the past decade, as cities have gentrified, the suburbs have continued to grow at a breakneck pace. Atlanta’s sprawl has extended nearly to Chattanooga; Fort Worth and Dallas have merged; and Los Angeles has expanded over the 10,000-foot San Gabriel Mountains into the Mojave Desert. Some experts expect conventional suburbs to continue to sprawl ever outward. Yet today most Americans, living in single-family suburban houses that are segregated from work, shopping, and entertainment, would prefer to live in the heart of the city.

Pent-up demand for urban living is evident in housing prices. Twenty years ago, urban housing was a bargain in most central cities. Today, it carries an enormous price premium. Per square foot, urban residential neighbourhood space goes for 40 percent to 200 percent more than traditional suburban space in areas as diverse as New York City; Portland, Oregon; Seattle; and Washington, D.C.

Investors are therefore advised to focus on central cities – or suburban towns that have focused urban centres offering a mix of residential and commercial development. Americans are being drawn to the convenience and culture of walkable urban neighbourhoods across the country – even when those neighbourhoods are small.