“To gain your own voice,
you have to forget about
having it heard.”
~ Allen Ginsberg, WD
you have to forget about
having it heard.”
~ Allen Ginsberg, WD
Like many Americans, I've always been interested in the US real estate market. Eventhough I have been living in Switzerland for the past 9 years and no longer own any US properties, I still pay attention to what's happening with US real estate and continue to watch all my favorite property shows including House Hunters, Flip or Flop, Maine Cabin Masters etc. Although these TV shows provide many tips on finding a good property and helping you to fix and decorate it, they don't help you to identify the best time to buy real estate. I now own a house in Switzerland, but am still interested to invest in US real estate and I constantly monitor the US real estate and economic indicators to identify when I should invest in US real estate again. One important indicator I pay attention to is home ownership trends. As you can see below, home ownership was on the rise from the mid-90s until 2005. Then home ownership started to decline and soon after the US banking crisis occured bringing home ownership to lows observed in the 60's. Since 2017, real estate home ownership has been rising again which is positive news, but it's difficult to predict if this is a short term trend or beginning of a long term trend in home ownership. After watching these property TV shows and speaking to real estate professionals, they always tell you to buy real estate in the best location. "Best Location" means differently to each person, so what it means to me is to buy a property in or near a large metropolitan area which has a stable and growing diverse economy. I monitor the S&P Case-Schiller Home Price Index as measures residential price changes among 20 major cities in the US. The real estate investors which bought properties in 2012 when mortgage rates and home ownership was at the lowest really did well as they were able to acquire properties at lower prices. Today, real estate investors are buying properties at highest price since more than 20 years ago and it is uncertain if home prices will continue to rise further. Another important real estate indicator I monitor is the 30 year mortgage rates which is the lending term most Americans take when purchasing their home. The chart below displays that mortgage rates were declining since before 1990 and reached it's low at the end of 2012 below 4% and then began rising to about 5% today. Unlike during the 90's till mid 2000's, when mortgage rates were falling and home ownership rates were rising. Today, we have mortgage rates and home ownership on the rise which we haven't seen since between the 1970's to early 1980's until the US inflation rate reached levels above 10% and the US fed took action by hiking interest rates to help stablize and reduce inflation which later led to the Savings & Loan Crisis when banks failed due to issuing long-term loans at fixed rates that they couldn't borrow lower from the US fed. The other US real estate indicators I closely monitor are the following:
Real estate performance is directly a result of how the overall economy is performing. There are many types of government economic data released to the public, but in my opinion the very important ones I monitor are the following:
Last but not least, I monitor all the markets including the stock market, US Dollar and Fed Funds Rate which give you indication on market trends. The US Dow Jones Industrial Average index is one of the most followed US indices and is comprised of the 30 most well-known US companies listed on the New York Stock Exchange. The top 30 US stocks performed exceptionally well in 2017 mainly driven by tax cuts, promise of de-regulation, improved trade deals, etc. In 2018, the stock market was very volatile and currently has a negative performance compared to 2017 driven mainly by political risk eventhough the economic indicators are still strong. Since December 2016, the US interest rates (bottom left) have been slowly but steadily increasing including three rate hikes this year and another rate hike expected in December. Higher interest rates typically means more interest to buy US Dollars (bottom right) which makes US goods more expensive for foreign importers and US companies can buy foreign goods cheaper assuming the US doesn't apply higher tariffs on importing goods into the US. So, is it a good time to buy US real estate now? In my opinion, the trade war will continue to cause uncertainty in the markets and ultimately impact the real estate market as we've seen thus far in 2018 with lower pending, existing and new home sales indicating that we have a buyer's market now. The US fed is expected to further increase rates in December and also a few times more in 2019, which I hope they don't as it is still interesting to buy real estate now from a mortgate rate perspective. But, I am anticipating a drop in real estate prices in 2019 so I would be looking to negotiate good deals in the "best locations" as once the trade war is over to the postiive effect for US trade, we could see higher real estate prices and home ownership rates like we've seen in the mid-90s.
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AuthorRyan Nettles has been active in the FX, Fintech and Futures Industry for more than 15 years and has invested in real estate in the US and Switzerland. Archives |