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US property prices continue to climb

American property has turned the corner with prices continuing to rise, according to the latest research from S&P Case-Shiller index

Warren Lewis
|
7th June 2013
Overseas
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American property has turned the corner with prices continuing to rise, according to the latest research from S&P Case-Shiller index

The data shows that house prices rose by over 10 per cent in the last four quarters and all 20 cities in the index posted positive year on year growth.

Phoenix had the largest annual increase at 22.5 per cent followed by San Francisco with 22.2 per cent and Las Vegas with 20.6 per cent. Miami and Tampa, the eastern end of the Sunbelt, had  smaller increases of 10.7 per cent and 11.8 per cent. The weakest annual price gains were seen in New York (+2.6 per cent), Cleveland (+4.8 per cent) and Boston (+6.7 per cent), but even these numbers are quite substantial.

All 20 cities showed increases on an annual basis for at least three consecutive months. Atlanta, Detroit, Las Vegas, Los Angeles, Miami, Minneapolis, Phoenix, Portland, San Diego, San Francisco, Seattle and Tampa all posted double-digit annual returns. Las Vegas, Phoenix and San Francisco were the three cities to increase over 20 per cent in March 2013 over March 2012.

Charlotte, Los Angeles, Portland, Seattle and Tampa were the five cities to record their largest month-over-month gains in over seven years.

As of the first quarter of 2013, average home prices across the US are back at their mid-2003 levels. At the end of the first quarter of 2013, the National Index was up 1.2 per cent over the fourth quarter of 2012 and 10.2 per cent above the first quarter of 2012.

Rod Thomas, Director of Axis Property Investment comments:

“US mortgage rates are now near their lowest levels since long-term mortgages were first offered in the 1950s. A 30-year fixed mortgage currently costs as little as 3.6 per cent in interest to service each year. This has made houses more affordable and driven a big rise both in mortgage applications and in refinancing to cheaper deals.

America’s demographics also support the market. Younger people still find houses relatively expensive, so they’ve switched en masse to renting. As a result, America’s rental market has boomed in recent years, helping to support prices.

Rental vacancies are now at their lowest levels in over a decade, while the homeowner vacancy rate is at its lowest point since March 2006.  Selected regions in the US can easily give a rental yield of well above 5 per cent.

For those considering property investment in the US, the climate is favourable and hotting up. Low, but rising prices and increasing average rental rates make it possible to achieve much better yields than in the UK.”

While there are great opportunities to be seized in the US, there are also significant risks. Axis Property Investment has put together some tips to ensure you get the best possible result from your US property investment:

- Don’t use US real estate brokers:

Most US real estate brokers have the interests of the seller, not the buyer at heart. An intrinsic part of their business model is to maximise the asking price in order to bump up their commission. Properties are often sold as seen and you can be taking on a property with associated problems – either in terms of the fabric of the building or ‘liens’ – debts linked to the address which may be passed onto the new owner.

- Work with an experienced acquisition company:

When buying real estate in the US you are dealing in with property more than 3,000 miles away. The legal system, language and ‘feel’ may be similar to the UK or indeed elsewhere, but there are a many differences – both subtle and significant. Location is absolutely critical – one side of a street may be a great investment while the other side is a disaster.

- Research the price:

Property valuation in America is an uncertain business. Firstly, you need to know if you are paying the wholesale or the retail price for a property. It could be the case an area has a heavy concentration of wholesale units for sale at a certain time – and this could well affect the perceived market price. Detailed research of local, regional and national markets and trends is necessary in order to get a holistic picture – this could well prevent you from making an expensive mistake.

Make sure property has been refurbished before you buy:

Only invest in properties which have been fully renovated before proceeding with the transaction. This significantly reduces risk and enables you to be sure that what you have agreed to purchase is actually delivered.

- Ensure property is tenanted before you buy: A pre-tenanted property means there will be no initial void period and your income stream will start to flow into your account. Furthermore, there is also associated hassle and stress with an empty property such as the chance of vandalism, or the higher insurance premiums you may have to pay for an empty unit.

- Investor due diligence :
 Carry out independent research to ensure the deal really stacks up. Check out what is said about the neighbourhood, conduct comparable price checks.

- Consider independent legal advice:

 Make sure you understand the relationship between you, the vendor and the legal professional assigned to look after the sale. Some Title Agents do precisely what their name suggests – they merely check the title on the property is clear and will not feel it is their place to advise you on other aspects of the deal. You may want to consult an independent legal representative in order to make sure the contract is fair and reasonable.
 
- Commission an independent property inspection report: Prior to completion on a deal you may wish to seek out an independent property inspector in order to report back to you and ensure rehab has been completed to your satisfaction.

Invest primarily for income:

A golden rule of property investment is that monthly income is immediate and definite - whereas capital growth, though it may be lucrative - is uncertain, you don’t know for sure what capital growth will be. If you focus on the income and treat capital growth as a welcome bonus – this will serve you well as the bedrock of your US investment strategy.

Be realistic in your exit strategy:

We are currently at the bottom of the US property cycle – just at the point where prices are starting to rise. In order to derive the greatest overall returns, you should be looking to sell at the top of the cycle – and this will take some time to arrive – maybe even a decade from now
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