Even more reasons not to invest in US property

At the recent Sydney Home and Property Investors Show I was surprised to see so many “promoters” encouraging Australians to invest in US property. And unsuspecting novice investors were excited by the prospect of buying a property for less than $50,000.

If you’re like me you are probably getting invitations to invest in the US property market in you inbox also.

Well…I’ve written a number of bogs on why not to invest in the US in the past and if the advent of GCF Mark was not enough to put you off, a recent research report from global bank HSBC should put the final nail in the coffin for you.

Just like in Australia there is not “one” property market but the HSBC report concludes that the US property market is languishing and prices are still falling. It explains…

Existing homes sales fell 3.5% in July compared to June, continuing the decline that has been in place since the start of the year. Compared to the first seven months of 2010, sales this year are down 3.8%.

The median sales price of homes sold is also in a down trend. The median price over the last 12 months is down 2.6% compared to a year earlier.

Weakness in home sales and prices has restrained house construction for the past year and is likely to so in the near future as well.

Meanwhile, the soft state of the market is depressing consumer confidence as well.

The housing market is still languishing, not just because of slow growth in employment (normally job growth and home sales are strongly correlated), but also because of tighter credit standards and more caution on the part of lenders with respect to price appraisals for houses.

The National Association of Realtors, who compiles the existing home sales data, reported that roughly 29% of all sales in July were for cash. This suggests that investors with cash can pick and choose among the available supply, but traditional homeowners who need a mortgage to buy a house are having difficulties.

Indeed, the NAR reported that 11% of all contracts were cancelled in the month because bank appraisals came in below contracted prices. In addition, about 24% of contracts were delayed or had to be re-negotiated. While buyers and sellers may agree on a price based on current market conditions, banks are more cautious as they look at price trends and at the existing real estate risk that they already hold in their portfolios.

It is safe to say that lenders were contributing to the rise in demand during the up cycle phase of the housing boom, and they are now reinforcing the weakness during the down phase by being more cautious with the provision of credit.

The inventory of homes for sales remains high, with the months’ supply rising to 9.4 from 9.2 in June. Changes in the supply of homes on the market are highly seasonal. The average number of homes for sale, while varying from month to month, has not changed much on average over the last two years. The number of homes for sale has averaged about 3.7mn over the past year, much higher than a more normal supply of about 2.5mn.

Bottom Line: The USA housing market remains weak.

Home sales have trended lower all year. So far this year, sales are 3.8% lower than the same period in 2010. Median sale prices are still edging lower, down about 4.5% form July 2010. Inventory remains high. The poor state of the market will inhibit house construction and continue to weigh on consumer confidence.

I understand why some potential investors who can’t get a foot into the Australian property market are considering buying in the USA – but it’s pure speculation.  Read my previous blog here to find out why.


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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media. Visit Metropole.com.au

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