US Investment Property Climate

According to the chairman of the US Federal Reserve Ben Bernanke, the US investment property climate is not particularly positive right now - in fact the phrases he used recently when referring to the housing market in America were “substantial correction” and “major drag”.  So is it still possible to make a profit from property in America or does the situation in the US real estate market represent the beginning of the end for this particular cycle of global house price increases?  We examine the situation more closely…

On the one hand Ben Bernanke is of course correct – the residential housing market in America is stale, residential construction is at a standstill, new projects are not being proposed and home owners and property investors wanting to release equity or even sell up and relocate are seeing their homes languishing in a stagnant market pool for months on end. 

So, US property is not as attractive a commodity as it once was!

However, in almost any property market where there are no major economic or political reasons why the market could not rise again there are opportunities to profit from real estate.  The four main questions any investor has to ask him or herself before committing to a property purchase in an uncertain market are: -

1) How liquid is local affordability?
2) How much equity is present in the market?
3) What does the mortgage market look like?
4) How much will it cost to buy and hold real estate?

1) In certain affluent locations in America there is an inward flow of investment in the form of professional migrants relocated to take up employment opportunities, there is low unemployment and in many cases there are increasing wages – this means that there is potential for local affordability.

2) The majority of homeowners in the US have equity in their homes and will continue to have equity in their homes especially if, as Ben Bernanke currently foresees, property prices remain stagnant.  This fact means that there is wealth within these homes with which future purchases can be leveraged if and when the climate is right for the market to begin moving again.

3) The mortgage market in America is mature, transparent and active in the lending of money to prospective purchasers meaning that if and when lenders are asked for property finance they will be forthcoming.  Add to this the fact that an extended pause in interest rate movements is currently being predicted by economic analysts in America and one can see that not only are mortgages for the purchase of property in the USA readily available, they are also readily affordable for the majority.

4) Finally, possibly as a result of the perceived slowdown in the American real estate market or possibly because the time was right for debate there has been a great deal of deliberation surrounding the issues of property tax in America with pressure being put on governments to reduce taxes to make home ownership even more affordable.  As pressure continues to be applied it is likely that the cost of buying and owning property in the US will remain relatively low to ensure interest returns to the market.

Bearing all of these factors in mind one can see that the US property investment climate is actually far more promising than at first glance and those who make careful purchases even at a time like this could well profit from their assets in the medium to long term as there is affluence and desire waiting to be drawn back to the market.

For those looking for less risky alternatives both the REIT market and the commercial property markets in America are actually doing very well indeed thank you and represent viable opportunities for those who like the security of a mature market like America’s but who would rather ‘wait and see’ when it comes to the residential housing market.

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