With signs that the housing market in the USA is bottoming out at last, many property investors are considering a purchase Stateside, says Clare Nessling
With property prices up for the seventh month in a row, there are signs that the housing market in the USA is on the mend at last, which is good news for any clients who have been thinking of buying property there.
The S&P/Case Shiller index of 20 metropolitan areas has just reported a 0.5% increase on a seasonally adjusted basis, in line with economists’ forecasts. This is the seventh straight month of increases, extending the longest continuous string of gains since prices were boosted by a homebuyer tax credit in 2009 and 2010.
The turnaround in property prices is spreading some cautious optimism, as it’s a required step towards enticing more buyers and sustaining demand for homes. And with sales improving, the inventory of homes for sale has been decreasing, which is also bringing some welcome stability into the market. Generally, prices are still more than 30% below their 2006 peak, and this, together with record-low borrowing costs, is making the prospects of owning a home in the USA better than ever.
A recent overseas property report from HSBC actually found that UK overseas property buyers’ money currently goes furthest in the USA, where a £125,000 budget can purchase a four-bedroom home in Orlando with a large garden and a private pool, compared with a three-bed house in Costa Blanca and a studio apartment in the Swiss Alps.
Average rates on 30-year and 15-year fixed mortgage deals have been falling to record-low levels in recent months. Rates on a 30-year fixed-rate mortgage averaged 3.38% in October, according to Freddie Mac, which is the lowest monthly average since long-term mortgages began in the 1950s, and compares with an average rate of 4.07% this time last year.
It seems that the housing market is finally turning the corner, six years after its collapse. And the sector is now expected to contribute to US economic growth this year for the first time since 2005.
We continue to get a lot of interest from prospective investors who are thinking of buying a property across the pond. Top of the list is Florida, where property prices have fallen dramatically over the last few years. And if property is within easy travelling distance of the famous theme parks, year-round rental opportunities are good too.
As with anywhere else, though, it pays to be selective and to carry out thorough research. Clients should beware of buying repossessed properties at bargain basement prices in locations such as Detroit, which often involve too much risk. Mortgages are not available for such properties and I’d definitely advise against a cash purchase. It’s advisable for them to stick with the better known and trusted markets such as California, Colorado, Texas, Florida, and Manhattan New York, where they can also find bargains with a lot less risk involved. They’re more likely to qualify for a mortgage in these areas too.
There’s no doubt that the mortgage market has changed significantly over recent years in the USA and that financing the purchase of a property there is not as easy as it used to be, but it’s certainly improving, and is much easier if someone has a healthy deposit to put down.
There are, in theory, no restrictions to foreign nationals owning property in the USA and mortgages are available for purchases up to 65% or 70% of the property’s value depending on the state in which the property is located. Most are on a repayment basis, and interest rates and loan terms tend to vary depending on the property type and exact location. Deals currently range from 3.75% for a three year fixed rate, 4% for a five year fixed rate, and 5.50% for a long term (30 year) fixed rate. These mortgages have no early redemption penalties so lump sums may be paid off the balance at any time without incurring a penalty.
It may be a good time to buy property in the USA, but as always, it’s imperative to take professional advice before making any decisions. Prospective buyers should always go through the same process that they would follow if they were buying a property in the UK, and this includes consulting a good independent lawyer, and ensuring that an independent valuation of the property takes place, even if it’s a cash purchase. There’s nothing to be gained, and everything to lose, by cutting corners and taking unnecessary risks.
Clare Nessling is director at overseas mortgage firm Conti