Investing in the US property market

US Housing MarketIn 2008-2009, the U.S. experienced the worst economic recession since the 1930’s resulting in a significant real estate price correction. The U.S. housing prices hit bottom in 2012 nationally, then started to recover steadily. Looking back to the long history of U.S. real estate market, property prices increase by 3-5% per year nationally on average, and it is expected that this trend will continue over the next few years. Today, house prices are increasing at 4-5% per year nationally, but house prices in some cities remain 40% lower than at the peak of the market indicating good options for investors. Some factors that affect the U.S. property market include:

The low interest rate in the U.S. stimulates the real estate sector by encouraging home-buying activity and by making it less expensive for individuals and businesses to borrow money to invest in all types of real estate.

The U.S. economy is in a recovery mode. Businesses are doing well, and job opportunities have been improving. Americans are optimistic about the economy, and the property market sees an increasing demand from local Americans.

Price-to-income ratio is another important metric that investors use to evaluate and compare the attractiveness of property markets. The Economist indicated that U.S. house prices relative to income are 11% undervalued (Britain: 27% overvalued, Canada: 35% overvalued). The ratios of some cities are: New York 25.0; Shanghai 26.6; Beijing 34.53 and Hong Kong 45.4.

With sound economy prospects, many overseas investors see the US property market more preferable compared to other property markets in the world.

US Housing Market

Most foreign homebuyers invest in urban coastal areas, such as Los Angeles, San Francisco, Seattle, and New York. New York, often regarded as a safe haven for real estate investment, remains a favorite investment destination. For example, New York witnesses a growth in prices of around 10% per year, which is expected to continue in the future. San Francisco, as another example, has seen a very high appreciation of over 35% for the last two years driven by the strong growth in its tech sector. This growth trend in San Francisco is expected to continue in the long run, but currently investors are concerned about the high valuations and the risk of bubble.

Other US cities such as Miami, Austin and Memphis are also getting attention. Miami is seeing appreciation at 8% (over the last 12 months) and has good growth prospects with continued development of the city and business sector. Billions of dollars is being invested in transforming its downtown area. Austin is the fastest growing large city in the US and is ranked number two for commercial real estate investments based on a survey. This is because of the strong job growth across many sectors in Austin. Memphis at the other hand is seeing a lot of interest as it is the number one city in the US for cash flow properties with net yield of 10% (source: RealtyTrac) .

Lastly, a few US banks are open for financing to foreign investors. This will increase the returns for these investors greatly. For example, the rate on a 10 year ARM mortgage is 4% while a 30 year fixed mortgage has 4.4% interest rate.

In conclusion, the US real estate market has been in recovery mode since 2012. Many investment opportunities exist for foreign investors with certain cities seeing high appreciation potential over the next decade while others are attractive for cash flow.

Date: 2015-11-15