US property outlook – Growth

Posted by By at 26 August, at 11 : 46 AM Print



TGR12_COREPropertyCaseStudyDespite restrictive lending from finance companies, Joel Dobson still sees many reasons for growth in the US property market.

Ask any reliable US source and most will tell you to expect a growth of at least 1% for the remaining quarters of 2013.

Why 1%?

Everyone knows that the downturn has occurred and everyone knows that recovery has begun, as reflected across all sectors from residential to commercial and industrial. However, what most don’t know yet is; how much will it continue to recover and how fast?

The US property economic growth for 2012 was down from an historical average of 3.25% P/A, to 2.2%. As such, it is estimated by a majority of sources to be slightly less than 2% for 2013. However, with all other contributors to growth acting retroactively, 2014 is targeted currently at 3% or higher.

One of the largest contributors to property prices is the underlying buyer demand in an area. The more the demand on a property type; the greater the justified asking price can be.

When looking at the previous sales volumes across the US during the past decade, 2009 was a period where the property sales volume was less than that seen in 2001 – worth an estimated US$60 billion.

The general buyer profile for US property for 2012 saw that about 35% were owner occupiers, 31% was acquired by investment funds and only 9% was acquired by foreign, or by cross border transactions. Interestingly, cross border transactions have seen a steady increase since the market downturn in 2007, and have no indicated signs of slowing.
The majority of property sectors have been enjoying strong and consistent growth for the last two years, with correlations between the sales volumes and increases to rental yields.

So, if the market appears to be on the growth cycle again, why aren’t the property prices increasing accordingly?

Quite simply: funding!

There is, in most circumstances, a third party to each property transaction, and that’s the financier. US banks still aren’t lending to its own citizens. This is despite the fact that in most cases the applications for new mortgages have what is perceived as a strong potential for credit or credit score.

The backers of the banks, or wholesale funders, want greater assurance for their investment and, as such, dictate stringent terms by which funds are able to be loaned out.
In 2006, refinancing was at less than a third of all mortgage applications, while new loans were over 60% of new business for US banks. However, by 2012 re-financing was well over 80% for much of the year which is clearly a swing by a majority of mortgage holders to take advantage of the lower interest rates – rates which aren’t expected to move far until well into 2014.

As lending eases and more buyers re-enter the market, and as already illustrated in specific areas such as San Francisco, property prices are gradually following suit and, as such, creating the levels of demand that justify those higher prices.

Some of the key markets involved in home construction and development have already staked their positions in the ground regarding the market upturn. Mike Thaman, CEO of Owens Corning, one of the largest insulation and roofing product manufacturers in the US, believes there is reason for positivity.

“We see very good news on the existing home front. In fact, the top 20 markets today are probably inventory-constrained,” Mr Thaman said. “So if you go to markets like Houston or Phoenix, realtors will tell you that inventories in those markets could be zero days to negative. This means people hear of a house going on the market and the house sells before it even hits the market.”

 

Excerpted from an article originally published in the Sep/Oct 2013 issue of Think & Grow Rich Inc. magazine. If you are a subscriber to Think & Grow Rich Inc. magazine, you will receive this article in your Sep/Oct 2013 issue of TGR. If you are not a subscriber, click here to subscribe.

 

Expert Advice, Property, The Core


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