38 | NAR VIEWPOINT USA WORDS | Cindy Fauth
BUSINESS
www.opp.org.uk | FEBRUARY 2012 Brighter skies ahead
Is the residential property market in the United States fi nally beginning to see some daylight? After years of bad news and volatility it would be a welcome change if stability were to appear on the horizon for 2012. Following a year marked by the government, the mortgage industry, and Mother Nature wreaking havoc on the U.S. housing market, OPP’s NAR columnist Cindy Fauth believes that things are looking up.
Lawrence Yun, NAR Chief Economist, and we have the housing market to thank. “The key reason is the housing market recovery. After six years of a demoralising and protracted housing market recession, a light is fi nally appearing at the end of the tunnel,” he argues. And while economists and analysts are divided among themselves on whether the market has hit bottom, Yun expects that the worst is over for the United States. He cites the downward trend of existing home inventory, rising rent prices, new jobs added to the economy, and low mortgage rates as reasons for optimism. Existing Home Inventory has been trending downward consistently. The total number of homes listed for sale at the end of October was 3.3 million, down from 4.5 million in the middle of 2008 and this is the lowest inventory level since 2005. This trend occurred for the three months leading up to October as well. Inventory running at six-year lows for several consecutive months signals that price declines are coming to an end. Accelerating rent increases will also
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tip some renters into buying, while real estate investors will have an added reason to own another property ... new jobs. Increasing employment rates generally mean more home sales. Since the low point in early 2009,
the economy has added 2.5 million net new jobs. We must not overlook low mortgage rates either – these are a motivating force for on-the-fence buyers. According to Yun, mortgage interest rates should gradually rise from recent record lows and reach 4.5 percent by the middle of 2012. My advice to overseas home buyers looking at the USA is “Don’t Wait Too Long!” Based on the economic forecast for
2012, waiting to buy could be a costly mistake. Home prices across the nation vary, but Yun predicts an overall price
he likelihood of an economic recession in the upcoming year in the U.S. is small, according to
increase of 2 percent in 2012. “Home prices have yet to show a defi nitive stabilization pattern in most areas,” he says. “Still, given an over-correction in prices, there likely will be moderate appreciation in 2012.” Beyond 2012, Yun projects a gradual
increase in home prices: a 3 percent gain in 2013, and 4 percent increase in 2014. Another factor, pointed out by Jed Smith, managing director of quantitative research for the National Association of Realtors, is the consistent pace of phantom inventory (homes headed into foreclosure) working its way through the market. Assuming the shadow inventory keeps this pace, prices should start to
2012, given the relative uncertainty of the Eurozone’s future. Assuming there are no economic
catastrophes in the United States, the Eurozone crisis should cause the dollar to go up. Let’s list the reasons to buy residential property here in the coming months: 1. Currency rates. As noted above, the
U.S. dollar has depreciated in recent years to many world currencies. 2. Investment opportunity. Due to economic unrest around the world, investment in U.S. property remains a much more solid investment than stock markets. 3. Bargain shopping. Signifi cant
symbolic of status and their ability to be a “player” in the world economy. “It’s a very attractive time for Eurozone buyers to invest in the United States.
The U.S. economy is gaining strength,
it’s a secure investment, and prices are reasonable,” Smith said. “Now is the time to buy, before prices and the value of U.S. currency go up.”
And there will be growth in mixed use real estate in 2012 too. Yun expects mixed use commercial real estate markets in the U.S. to follow the general U.S. economy in a path of growth in 2012. This sector was relatively fl at in 2011, but improving fundamentals mean a more positive trend is expected
“Inventory running at 6-year lows for months signals that price declines are coming to an end”
Blue skies | over the USA as a presidential election year opens up and markets recover
stabilise and gradually rise over the next several years. “This is the market we will be talking about in 5 years,” Smith said. “Smart investors are putting their money into the housing market now, because 5 years from now, prices should be higher, the housing market should be more normal, and we’ll be reminiscing about the historic lows.”
The U.S. dollar remains weak against foreign currencies; so international buyers have advanced buying power at this point. That is subject to change in
depreciation in U.S. properties, with the expectation that the market will soon bounce back, translates into good values for foreign investors, yielding high ROIs. 4. College. More and more wealthy
overseas buyers are sending their children to universities in the United States. They can buy property to house their children and sell it later.
5. Status. For those who have maintained or earned wealth in the down economies across the world, owning luxury property in New York or Los Angeles - or a beach home in Florida - is
in 2012. “Vacancy rates are fl at, leasing is soft and concessions continue to make it a tenant’s market,” says Yun. “However, with modest economic growth and job creation, the fundamentals for commercial real estate should gradually improve in the coming year.” Looking at vacancy rates from the fourth quarter of this year to the fourth quarter of 2012, NAR forecasts vacancies will decline by 0.7 percentage points in the multifamily rental market. “Vacancy rates are expected to trend lower and rents should rise modestly next year. In the multifamily market, which already has the tightest vacancy rates of any sector, apartment rents will be rising at faster rates in most of the country next year. If new multifamily construction doesn’t ramp up, rent growth could potentially approach 7 percent over the next two years,” Yun said. Everyone here is getting excited about
the year to come ... let’s hope we will be able to bask in a warm and sunny glow of daylight as 2012 progresses!
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