Overseas property investors looking at the American market will be interested in US real estate trends expected for 2020, in order to find the best places to invest their money.
Ingo Winzer, president of Local Market Monitor, which follows US real estate dynamics in local markets, has shared his thoughts on the US real estate market in 2020.
Firstly, he expects a greater concentration of demand for housing around a small number of big markets where there is a concentration of new jobs.
IT support, personnel support, office space and – most importantly – healthcare are more effective when they’re concentrated. So, businesses tend to cluster in markets where these services already exist, which in turn concentrates the services even more, making the markets even more attractive.
What this means for overseas property investors is that demand for housing in big markets almost certainly will continue to grow faster than builders can create more supply. In other words, prices will keep going up and so will rents.
US real estate prices are expected to slow this year, so it is important not to get caught buying at the top of the market.
On average, US real estate prices were up 5 per cent last year but are expected to rise by 3 per cent in 2020.
If overseas property investors want a safer investment in boom markets, it is worth considering apartments instead of single-family homes, as rental demand is always likely to stay strong.
The surge in US real estate prices in recent years, especially in many of the big markets, puts a single-family home beyond the reach of more people. The ratio of prices to rents has always been high in markets like New York City and San Francisco, but that now also applies in Seattle, Portland, Miami, Nashville, Charlotte, Boston, Denver, Columbus, Austin.
This is good news for investors in rental property but also means that it’s difficult to just buy a single-family home and rent it out: the number of people who can afford the high rent is small.
A better strategy in these markets is to split a single-family home into several rental units, even though that takes time and money. Apartments are also a good idea, especially because rents will continue to rise, even if home prices don’t.
If looking for smaller risk, it is worth considering smaller markets.
The 2008 crash exposed the weakness of the local economy in many smaller markets, where unemployment soared, and home prices fell. With a few exceptions there hasn’t been much of a rebound in these markets – but that also means that there’s almost no remaining downside to rental property.
You can’t just invest blindly in these places – some still have high unemployment, some have just one big employer, whose fortunes you must weigh – but in most cases your economic risk is small even if very little growth is taking place.
Investors will want to avoid the credit risks you run at the lower end of the investment price range, physical location is even more important, and you can’t count on rising prices to flesh out your expected return – you must drive a hard bargain.
However, the ratio of prices to rents will often be in your favour, your investment won’t cost an arm and a leg – and you probably won’t have much competition.
Wherever you choose to invest in US real estate, always do your homework and talk to local experts.