Mark Mashiter, Director at Qualitas Property International, one of the top UK based professional real estate investment companies, working in the US market buying and selling land and property, talks about the state of the US market and the opportunities that currently exist for investors there.
“Prices today in the US are up to 80% under their peak values before the market crash in 2006. With signs of recovery already being reported, (house prices have again showed their second year-on-year increase), prices will continue to steadily increase making this a unique window of opportunity to invest in the USA if you can find the right deal.”
Investing in real estate has up until recently been the preserve of those chasing high risk, high yield deals and those investors who choose to invest counter cyclically. This is because the scale and depth of the housing crash has caused home prices to drop almost 80% in some areas. However since the 4th quarter last year positive news regarding the fundamental economic markers for the housing market have started to appear with greater and greater regularity. So much so in fact that many market observers from Warren Buffet to the Wall St Journal have called the bottom of the market and in some States area price rises have occurred.
However the U.S. is not one homogenous market, rather a series of small independent markets, therefore while in some areas such as Arizona and Florida the recovery is in full swing, others such as Indiana, Michigan and Illinois are still in the mire of the crash.
Key indicators such as Housing Starts, Population Growth, Household Formations, Jobs Growth, Median House Price and Inventory are all important factors to look at when looking at a market.
In July 2012 the Florida Realtors Association Chief Economist Dr John Tuccillo, said: “The trend we’ve seen established over the past year is continuing…. “In June, every housing market indicator moved in the right direction. Closed sales are up, but so are pending sales, median prices, average prices and the ratio of sales price to list price. Conversely, listings are down, days on market are down and – most important – inventories are down. We have now reached a six months’ supply of inventory for existing single-family homes and 5.9-months’ supply for townhouse-condos.”
Dr Tuccillo went on to say: “With an improving employment environment in Florida, we expect that the housing market recovery will continue in the future.” So good news for Florida – but what about the rest of the country…
In many areas of the US there is a large pent up demand from people looking to buy their homes. This demographic includes those who have delayed buying a home through lack of availability of credit, turmoil in the market, lack of new housing stock as builders haven’t built, as well as a lack of affordability as house prices came off an all time high. Although difficult to quantify precisely, a recent Hanley Wood survey carried out in May 2012 found that as many as 2 million potential owners in the US are waiting for the right time to buy a home, with 29% of renters and 19% of homeowners planning to purchase a home during the next couple of years.
The housing market will only be seen to be truly recovered when builders large and small pick up their tools again. The statistics nationwide are looking up with the number of building permits issued at a seasonally adjusted annual rate of 780,000, 7.9 percent above the April rate and 25.0 percent greater than the prior-year month.
David Crowe, the Chief Economist of the National Association of Home Builders in America, said in a separate statement: “While many challenges continue to weigh down the housing recovery – including those related to builders’ and buyers’ access to credit, poor appraisals and the number of distressed properties in certain markets – production of single-family homes is now the strongest it has been since 2010 due to rising consumer demand brought on by improving market conditions.”
Doug Duncan, SVP and Chief Economist of Fannie Mae says: “While consumers remain cautious about the general economy, their attitudes toward the housing market continue to improve. Although this positive trend may be short-lived if the general economy falters, one might ask whether consumers are increasingly seeing the current environment as a unique opportunity to buy a home while home prices remain depressed, rental costs are increasing, and interest rates are near historic lows.”
Florida – the biggest opportunity for investors…
In South West Florida’s Lee County, which was once the poster boy region for the housing crash, the statistics are even more positive with building permits for single family homes in the first 2 quarters of this year having increased by more than 70%. According to MetroStudy’s Chief Economist, Brad Hunter, “The builders that I have talked to are managing to push their prices up. I think that is a good sign because builders would not be raising their prices if there was not demand to support that.”
Mr Mashiter concludes: “First and foremost we are property investors ourselves so we look carefully at the underpinning fundamentals and localised trends of any market in which we buy property for ourselves or recommend to others, following are some of our recommendations.”
Cape Coral, a city in Florida, which consistently ranks in the top ten places to open a business and CNN.com called it the 5th fastest growing US city in the past decade. The land in Cape Coral is currently up to 75% under its peak values since 2006, meaning that once construction starts, land values in desirable areas will increase dramatically. Land in Cape Coral has the potential to at the very least double in value in the next 3-5 years making it a sound investment.
“Cape Coral – Land investment focus, we can currently purchase a 10,000sq.ft land plot with full planning permission to build a 3-4 bedroom home for just $15,000. This same plot would have sold for $90,000 back in 2006!”
Orlando is still one of the most popular destinations in the States to visit with Disney remaining one of the most popular tourist destinations in the World. However, what makes Orlando one of the best places to buy now is that it saw one of the largest drop in prices during the crash, meaning that prices will increase dramatically over the next 5 years, and there is a consistently strong rental demand. This means now you can buy a property up to 70% under its peak values in 2006 ensuring massive gains.
“We can purchase a 2 bedroom condo in Orlando with up to a 70% discount from peak prices in 2006, currently for $59,000 (50% below construction costs) with a tenant in place generating between $6,000 – $8,000 a year. Expect prices to increase strongly over the next 5 years, as these deals disappear and the market returns to levels above the cost of construction.”
Miami still has unbelievable deals around, with the ability to purchase incredible homes which are already tenanted and will consistently achieve a secure rental income whist prices increase. This is the higher end of the market in Florida with heavy competition from South American investors, so finding a strong investment property is becoming increasingly difficult in a city that is seeing property values increase and that offers top tier rentals.
“We can pick up 3 bed luxury town homes in gated community at $102,900 (70% discount from 2006 peak values) with long term tenant generating $8000 per year rental income.”
For further information on the US market or any of these investment deals please visit www.qualitasproperty.com or call 0207 993 4192.