The US housing market has drifted lower, with house prices falling by 7.22% (seasonally-adjusted) year-on-year to Q3 2011, according to the Federal Housing Finance Agency (FHFA) (figures adjusted for inflation). The seasonally-adjusted Case-Shiller index was more negative, falling by 7.42% from a year earlier, and by 1.61% in the latest quarter.
House prices still don’t seem to have bottomed out. Freddie Mac expects that the US housing market will decline over the following months, because of the large inventory of homes with delinquent mortgages.
The number of new single family houses sold in September 2011 was 313,000 units, a 0.9% decline from September 2010.
Average prices were 20.02% down in Q3 2011 from the Q1 2007 peak, according to Federal Housing Finance (FHFA). Adjusting for inflation would make that significantly larger.
Some say prices are now so low that US houses are now actually undervalued. In a study by real-estate firm Zillow Inc. reported in August, US home prices are down from their “fair value” in one-third of nearly 130 housing markets. Undervalued markets includes: Detroit (25% undervalued), Modesto, California (18%) and Fort Myers, Florida (13%).
However, the study also shows that a lot of markets still appear to be overvalued. Zillow’s analysis used the price-to-income ratio in determining whether housing is undervalued or overvalued.
Economic reasons for expecting a poor outcome for the housing market include:
House prices still don’t seem to have bottomed out. Freddie Mac expects that the US housing market will decline over the following months, because of the large inventory of homes with delinquent mortgages.
The number of new single family houses sold in September 2011 was 313,000 units, a 0.9% decline from September 2010.
Average prices were 20.02% down in Q3 2011 from the Q1 2007 peak, according to Federal Housing Finance (FHFA). Adjusting for inflation would make that significantly larger.
Some say prices are now so low that US houses are now actually undervalued. In a study by real-estate firm Zillow Inc. reported in August, US home prices are down from their “fair value” in one-third of nearly 130 housing markets. Undervalued markets includes: Detroit (25% undervalued), Modesto, California (18%) and Fort Myers, Florida (13%).However, the study also shows that a lot of markets still appear to be overvalued. Zillow’s analysis used the price-to-income ratio in determining whether housing is undervalued or overvalued.
Economic reasons for expecting a poor outcome for the housing market include:
- High unemployment.
- High house inventories, combined with foreclosures and unemployment, are pushing down house prices in certain areas.
Analysis of United States Residential Property Market »
RENTAL YIELDS
Last Updated: Jun 16, 2011
In New York rental yields are moderate, which is to be expected in such a large, international city.
In Miami, smaller apartments in Aventura return rental yields of nearly 10%. At the other end of the scale large apartments or townhouses on Coral Gables or Key Biscane bring yields of around 4%. Between these two extremes there is a continuous gradient, with smaller properties in less prestigious areas yielding more, larger properties in more upscale areas yielding less.
However these rental yields are promising. Property in the US is now relatively inexpensive, from an international perspective. In addition, the US is a country with a growing population, due to its tradition of accepting a large number of immigrants. Low yields + low pricing in comparative terms + a growing population look an attractive combination.
We apologize for only covering two regions in a country as significant as the U.S. (we cover 6 cities in China!) Our reason is that there are many excellent U.S. sources of data. It would be redundant for us to devote resources to work that has been better done by others. We add value by work in countries that others do not cover well. Our U.S. work should primarily be seen in that light, as providing a standard of comparison for our other valuation work.
We remind readers that these are gross rental yields, i.e., they are calculated on the basis of the offered rent, and are before vacancies, costs, repairs, refurbishments or any other expenses. Actually achieved yields are likely to be lower.
In Miami, smaller apartments in Aventura return rental yields of nearly 10%. At the other end of the scale large apartments or townhouses on Coral Gables or Key Biscane bring yields of around 4%. Between these two extremes there is a continuous gradient, with smaller properties in less prestigious areas yielding more, larger properties in more upscale areas yielding less.
However these rental yields are promising. Property in the US is now relatively inexpensive, from an international perspective. In addition, the US is a country with a growing population, due to its tradition of accepting a large number of immigrants. Low yields + low pricing in comparative terms + a growing population look an attractive combination.
We apologize for only covering two regions in a country as significant as the U.S. (we cover 6 cities in China!) Our reason is that there are many excellent U.S. sources of data. It would be redundant for us to devote resources to work that has been better done by others. We add value by work in countries that others do not cover well. Our U.S. work should primarily be seen in that light, as providing a standard of comparison for our other valuation work.
We remind readers that these are gross rental yields, i.e., they are calculated on the basis of the offered rent, and are before vacancies, costs, repairs, refurbishments or any other expenses. Actually achieved yields are likely to be lower.
TAXES AND COSTS
Last Updated: Jan 31, 2012
Rental Income: Rental income is categorized as either Effectively Connected Income, wherein it is taxed at progressive federal tax rates, or Fixed Determinable Annual Periodical income, wherein it is taxed at 30% withheld by the tenant.States also levy income taxes at varying rates.
Capital Gains: Capital gains tax for properties held for more than a year is 5%; otherwise the tax is 15%.
Inheritance: Federal estate tax is progressive with rates at 18% to 45% and an exemption of up to US$2,000,000. A Generation-Skipping Transfer Tax is also being levied on transfers to beneficiaries who are more than one generation younger than the transferor.
Residents: Resident foreigners, like U.S. citizens, are taxed on their worldwide income.
BUYING GUIDE
Last Updated: Jul 05, 2007
Roundtrip transaction cost is around 7.6% to 11.2%. Significant costs include the 6% real estate broker's fee and real estate transfer tax, at 0.1% to 2% of property value. Total costs for legal fees, title search and insurance, and registration fees range from 1.5% to 2.2%.
LANDLORD AND TENANT
Last Updated: Feb 06, 2008
Strong anti-discrimination laws make the US slightly pro-tenant.
Rent Control: There are subtle rent control laws in 5 states; however their laws also have provisions to give landlords a fair return of investment.
Tenant Security: It is advisable for landlords to write a report citing all the allowable reasons when declining a prospective tenant. Tenants can also charge landlords with intentional infliction of emotional distress to fend off eviction.
Rent Control: There are subtle rent control laws in 5 states; however their laws also have provisions to give landlords a fair return of investment.
Tenant Security: It is advisable for landlords to write a report citing all the allowable reasons when declining a prospective tenant. Tenants can also charge landlords with intentional infliction of emotional distress to fend off eviction.
ECONOMIC GROWTH
Last Updated: Nov 29, 2011
Unemployment remains high; budget control act
Economic growth rates have improved over the past three quarters of this year (2011) with 2% growth over the year to Q3 2011.
US GDP maintained its growth after its last decline in Q2 2009, especially in 2010 thanks to the Obama administration’s massive stimulus programs, in coordination with the US Fed. For the full year 2011, the economy is expected to grow by 1.5%.
Despite improving economic conditions, the country’s weak labor market is hindering stronger economic growth.
Unemployment remained high at 9% in October, slightly down from 9.1% in the previous month. The US was able to create 80,000 new jobs in October, down from Wall Street’s forecast of 95,000 jobs. Pre-crisis unemployment rates ranged from 3% to 5%.
Meanwhile, inflation is forecast to be 3% by end-2011 is at 2.99%, higher than 1.65% in 2010 and also than the Fed’s long term goal of 2% or below.
In line with the 2012 US federal budget plan’s aim to focus on deficit reduction, the Budget Control Act of 2011, enacted in August 2, 2011, aims for a deficit cut of US$ 1.1 trillion over a decade. This will severely limit the administration’s capacity to stimulate the economy.
Aside from US’s high unemployment rate, other issues such as the recent Occupy Wall Street protests, EU’s debt crisis and the presidential candidates’ bid for the 2012 elections are also currently having a negative impact on the US economy.
US GDP maintained its growth after its last decline in Q2 2009, especially in 2010 thanks to the Obama administration’s massive stimulus programs, in coordination with the US Fed. For the full year 2011, the economy is expected to grow by 1.5%.
Despite improving economic conditions, the country’s weak labor market is hindering stronger economic growth.
Unemployment remained high at 9% in October, slightly down from 9.1% in the previous month. The US was able to create 80,000 new jobs in October, down from Wall Street’s forecast of 95,000 jobs. Pre-crisis unemployment rates ranged from 3% to 5%.
Meanwhile, inflation is forecast to be 3% by end-2011 is at 2.99%, higher than 1.65% in 2010 and also than the Fed’s long term goal of 2% or below.
In line with the 2012 US federal budget plan’s aim to focus on deficit reduction, the Budget Control Act of 2011, enacted in August 2, 2011, aims for a deficit cut of US$ 1.1 trillion over a decade. This will severely limit the administration’s capacity to stimulate the economy.
Aside from US’s high unemployment rate, other issues such as the recent Occupy Wall Street protests, EU’s debt crisis and the presidential candidates’ bid for the 2012 elections are also currently having a negative impact on the US economy.
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