Over the last month, visitors to TheMoveChannel.com have ignored the negativity over the US real estate market and registered their interest in US property en-masse, which has led to the world’s largest economy muscling its way into the top 3 of our ‘Top of the Props’ chart for the first time…
Potential investors seem to be ignoring the negativity of the ongoing sub-prime crisis and cashing in the UK’s incredible currency rate. With two dollars to the pound, the potential for cheap bargains and doubling your money has never been better.
Downward forecasts and rate cuts
Confronted with surging oil prices and falling house prices, the Federal Reserve has recently cut interest rates to 2.25% - the six cut in six months and a drop of more than half since August 2007. The cuts, designed to stimulate economic activity and keep the US from dipping into a recession, have also helped the pound soar to a 26-year high against the dollar.
New figures from the Knight Frank Global House Price Index reveal that House prices in the US have continued to decrease over the last quarter and the pace of decline appears to be increasing. Prices nationally have fallen 0.3% over the last year as the 1.3% quarterly decline in the last three months of 2007 negated slight gains earlier in the year.
The greatest declines in residential property prices were observed in California, where prices fell by 6.6%, Nevada (5.9%), Florida (4.7%) and Michigan (4.3%).
The current problems are compounded by the fact that Mortgage applications across the USA continue to fall, with The Mortgage Bankers Association’s (MBA) seasonally adjusted index (which includes both purchase and refinance loans) revealing another decline in March.
It’s not all doom and gloom!
There is some light at the end of the tunnel! Savvy investors have identified several areas of the USA that are seemingly immune to the ongoing sub-prime woe. Indeed, Knight Frank’s Global House Price Index reveals that the only state where prices did not fall in the final quarter of 2007 was Maine. Elsewhere, Utah, Wyoming, North Dakota, Montana and Alaska all saw price inflation of over 6%, with Utah achieving 9.3% in the final quarter of 2007.
There is also good reason to be optimistic about the Florida property market. Only weeks after Florida voters passed Amendment 1 in late January, Florida Realtors have noted signs of increased interest from potential homebuyers heartened by the measure’s property tax relief benefits, especially the portability provision.
In a recent online poll conducted by the Florida Association of Realtors (FAR) about a third — 35.5 percent – of the Realtor respondents answered yes, when asked if more property owners were interested in buying or selling property, thanks to portability.
Property tax portability is one of the benefits now made law under Amendment 1, which allows Florida homeowners to transfer their Save Our Homes tax benefits from their old homestead to a newly purchased home.
Chuck Bonfiglio, FAR President, commented: “This is only the beginning. Conducted just seven weeks after passage of Amendment 1, this poll shows that many of our Realtor members are starting to see heightened interest in the state’s housing market and reporting signs of increased activity.
“We’re looking forward to more positive activity in the coming months, as current Florida property owners and those looking to become Florida property owners gain a better understanding of what the new law means and start to take advantage of portability and its other benefits.”
‘Open Skies’ boost
Another new development that could have a positive impact on investors is the new Open Skies deal between the US and Europe. The new deal effectively ends restrictions on airlines flying between the US and EU, and it is expected to lead to a large rise in the number of carriers on the routes. Indeed, analysts say the introduction of more competition will almost certainly bring down prices.
A key component of the new aviation agreement between the EU and the US is that any European airline will be able to fly to the US from anywhere in the EU - not just from its home nation. British Airways and Air France have already announced their intention to launch flights to the US from outside the UK and France respectively.
Recovery underway?
The long term outlook for the USA also seems positive, with house prices expected to recover in 2008. This is certainly the view of Lawrence Yun, senior economist at the National Association of Realtors: “Buyers now have an overwhelming advantage given the wide selection of homes available in many markets.
”Existing-home prices are likely to rise 1.8 percent to a median of $222,700 in 2008 after a 1.4 percent decline this year to $218,800. The median new-home price should rise 2.2 percent to $245,400 next year following a 2.6 percent drop in 2007 to $240,100.
“Markets that sharply reduce new construction in 2007 will generally experience respectable price increases in 2008. Local conditions vary considerably, but with historically low mortgage interest rates at the moment and sustained job gains, it could be a good time for first-time buyers with a long-term view to test the housing waters.”
A buyer’s market with plenty of bargains
Dan Johnson, Managing Director of TheMoveChannel.com agreed with Mr Yun’s contention that the US is currently a buyer’s market: “The continued economic downturn stateside, the weak dollar and the strengthening euro are contributing to the growing appeal of the USA to sterling backed investors.
"In many areas it's a buyers' market, with unsold stock and a lack of available credit giving developers double the reasons to do a bargain deal.
Despite this, Dan Johnson urged investors to ensure they were diligent when evaluating potential purchases: “Low cost doesn't always equal high value and there are plenty of commentators who feel that worse is to come for the US economy.
“Pick the wrong project, where the fundamentals don't underpin the long term viability, and you could still end up seeing immediate short term losses. But if you're prepared to be patient and hold on for the long term, the months ahead will see plenty of bargains on offer.
Other risers and fallers
The ongoing battle between Spain, Italy and France for top spot continued, with Spain usurping Italy once again to take top spot in the chart, It was the second bad month in a row for France though, as the world’s most popular tourist destination slipping 3 places to 5th – it’s worst position in over a year. Portugal shot up 4 places to 4th place, whilst Cyprus and Morocco also continued to rise steadily up the chart.
Countries which fared less well this month include Germany, down 3 places to 14th and Bulgaria and Brazil, down 3 places each to 7th and 8th respectively.
To view current opportunities in the US Property market, please visit our US investment property portal:
http://usa.themovechannel.com/property/
Top of the props chart - March 2008
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