37 Per Cent of all US Homes sold in 2016 went to Investors
Home ownership in 2016 was the lowest for five decades, as people sought to rent rather than buy in the USA. While the USA's residential real estate market is not so favourable to private individuals looking to buy a home, there is plenty of scope for buy-to-let landlords and investors hoping to let holiday homes. Among foreign buyers, Florida is still a preferred destination.
Like all of the USA's twenty major cities, Miami saw a spectacular increase in house prices before the world-wide economic crisis hit in 2008. During the boom, which began in 1996 and began to cool off by 2006, Miami saw house values rise by 213.1 per cent - almost a moderate rise, when compared with Los Angeles though, which saw house prices rise by a staggering 265.5 per cent during that time.
Since a disastrous crash in 2008, Florida has experienced a nice upturn, but as with all other residential property markets, "location, location, location" is the all important factor for capital gains and rental yields.
If you're looking to buy an investment property, then it's not just a question of sunshine and accessibility of beaches. To attract short- and long-term tenants, your Florida property must be near shops, schools and cultural amenities. These factors will not only determine the asking price you pay, but also the rental values you can ask for and the resale price you'll eventually get.
A budget of between US $500,000 and US $600,000 still buys quite a lot of residential real estate in Florida. For example, house hunt in Windermere, Orange County with a budget of US $550,000, and you should easily find a lovely 5-bed house with spacious grounds. For US $499,000 it's not unheard of to find a 4-bedroom house in the same location. Head out to Miami-Dade County, however, and a similar sized house will cost in the region of US $13,900,000.
Here investors and holiday home buyers pay for luxury and exclusivity, when they buy turnkey houses in the 24-hour police-guarded, gated Bay Point community, a typical example of Miami's top-end properties. These are Italian villa style houses with five to six bedrooms and large grounds that contain at least one swimming pool and usually also tennis courts and a private jetty for berthing a yacht or motor launch. The homes come complete with spa and sauna, steam room and gym, heated indoor and outdoor pool, summer house, servants' quarters and state-of-the-art technological integration throughout.
According to the S&P/Case-Shiller U.S. national home price index, regional markets, in particular Las Vegas, Phoenix, Miami and California, were hit with huge price corrections, ranging from losses between 40% to 65% in the years between 2006 and 2012. Construction activity in these areas was equally hit, with numbers for new builds falling from 1.49 million a month in March 2007 to below 0.5 million a month in the first quarter of 2009.
However, seen over a longer period of time, the US housing market has remained surprisingly robust, and the last five years have seen a remarkable recovery in most parts of the US. According to the Global Property Guide for North America, demand over the last five years has continued to strengthen, and residential construction activity is growing.
Last year the Standard & Poor/Case-Shiller seasonally-adjusted national home price index saw a 5.83 per cent rise (3.71 per cent in real terms), following year-on-year rises of 5.27 per cent in 2015, 4.52 per cent in 2014, 10.74 per cent in 2013 and 6.47 per cent in 2012.
This compares to a 6.2 per cent rise in the seasonally-adjusted purchase-only US house price index published by the Federal Housing Finance Agency for 2016 (4.07 per cent in real terms). In fact, last year saw large house price increases in all twenty major cities, with Miami enjoying a growth rate of 6.79 per cent.
Demand for new single-family homes saw a sharp increase of 12 per cent to 561,000 units last year, compared to 2015, according to figures published by the US Census Bureau, so this is a good indication what type of property to look for as a buy-to-let investor.
And, according to the National Association of Realtors (NAR), the association of estate agents in the US, demand for resale homes grew by 3.8 per cent to 5.45 million units last year. That was the highest level since 2006.
"Solid job creation throughout 2016 and exceptionally low mortgage rates translated into a good year for the housing market," explained Lawrence Yun, NAR chief economist.
Although the "Trump effect" is beginning to set in – far less tourists visited the US this year than in the same six month period in 2016, job creation has continued to be high this year. This means people will continue to look for rental properties to retain their economic mobility.
Whether you buy in Miami, Florida or in any of the other twenty big cities, a buy-to-let investment in the US residential real estate market makes therefore solid sense.