New home sales up 43.2%.
Lalaine C. Delmendo | January 16, 2021
The S&P/Case-Shillerseasonally-adjusted national home price index rose by 4.29% during the year to Q2 2020 (3.62% inflation-adjusted) –up from the previous year's 3.25% growth.
House prices increased 2.17% during the latest quarter (2.29% inflation-adjusted), according to S&P/Case-Shiller.
House prices continue to rise in all of the country's 20 major cities, according to Standard and Poor's, with Phoenix posting the highest increase of 8.96% during the year to Q2 2020, followed by Seattle (6.5%), Tampa (5.89%), Charlotte (5.74%), Cleveland (5.4%), Minneapolis (5.39%), and San Diego (4.98%). More moderate house price rises were seen in Portland (4.25%), Atlanta (4.2%), Miami (4.03%), Denver (4.02%), Los Angeles(3.91%), Washington (3.54%), Boston (3.51%), Las Vegas (3.33%), Detroit (3.07%), and Dallas (3.06%). New York saw minimal house price growth of 1.67%, as well as San Francisco (1.45%), and Chicago (0.6%).
The Mountain region had the highest house price increases of 7% y-o-y in Q2 2020, followed by East South Central (6.01%), East North Central (5.61%), South Atlantic (5.6%), West North Central (5.41%), and Pacific (5.13%), according to the FHFA. More modest house price rises were registered in West South Central (4.78%), New England (4.61%), and Middle Atlantic (4.49%).
The median sales price of new homes sold fell by 4.34% y-o-y in August 2020, to US$312,800, according to the U.S. Census Bureau. For existing homes, the median price was up by 11.4% to US$310,600 in August 2020 from a year earlier, according to the National Association of Realtors (NAR). August's price increase marks the 102nd consecutive month of year-over-year gains.
Demand continues to rise strongly. Existing home sales rose by 10.5% y-o-y to a seasonally adjusted annual rate of 6 million units in August 2020, according to the National Association of Realtors (NAR). Likewise, new homes sold soared 43.2% y-o-y to a seasonally-adjusted annual rate of 1,011,000 units in August 2020, according to the US Census Bureau.
Construction activity remains weak, despite this. In August 2020, building permits authorized for new housing units fell by 0.1% y-o-y, according to the US Census Bureau. Housing starts were up 2.8% while completions declined 2.4%.
“Housing demand is robust but supply is not, and this imbalance will inevitably harm affordability and hinder ownership opportunities,” said Lawrence Yun, NAR's chief economist. “To assure broad gains in homeownership, more new homes need to be constructed.”
The U.S. economy shrank by an amazing annual rate of 32.9% in Q2 2020, following a y-o-y fall of 5% in Q1 - the steepest decline on record dating back to the 1940s. The U.S. economy is expected to shrink by 6.6% this year, the first contraction in 11 years, according to the IMF. The unemployment rate fell to 10.2% in July 2020, after registering a record high of 14.7% in April 2020, but remains far higher than the average unemployment rate of 4.4% from 2015 to 2019.
Good yields on studios in New York
Manhattan property has held up well through the crisis and beyond.
How much will you earn? Studio apartments will earn relatively more than one-bedroom apartments (in terms of return-on-investment), and those in turn will earn relatively more than two-bedroom houses, etcetera. To earn higher returns, buy smaller units.
- a studio apartment can rent for around $2,700 per month, earning a rental yield of around 7%
- a 1-bedroom apartment can rent for around $3,500 per month, earning a rental yield of around 4.4%
- Larger units earn proportionately lower returns. A 3-bedroom apartment is likely to earn a rental yield of around 2.4%
Round-trip transaction costs are moderate for buyers of U.S. residential property. See our U.S. residential property transaction costs analysis.
The complicated U.S. tax system
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.
U.S. buying costs range from low to moderate
Roundtrip transaction cost is around 9% to 11%. Significant costs include the 6% real estate broker's fee and real property transfer tax, at around 1.425% in New York City. Total costs for legal fees, title search and insurance, and registration fees range from 1.70% to 3.50%.
U.S. housing law is pro-tenant
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.
Plunging economy, ballooning deficitThe U.S. economy shrank by a whopping annual rate of 32.9% in Q2 2020, following a y-o-y fall of 5% in Q1, amidst social distancing restrictions and lockdowns. It was the steepest decline on record dating back to the 1940s.
The world’s biggest economy is expected to shrink by 6.6% this year, the first contraction in 11 years, based on IMF estimates.
The federal budget deficit is projected to surge to US$3.3 trillion in 2020, more than triple the shortfall recorded in 2019, mainly driven by the government’s massive spending and stimulus aids on pandemic relief, according to the Congressional Budget Office (CBO). The deficit is expected to reach about 16% of GDP this year, the highest level since 1945.
As a result, the federal debt will climb to about 98% of GDP this year and will surpass the size of the U.S. economy in 2021, according to the CBO. The CBO said that the fiscal imbalance has not been seen in the U.S. since the end of World War II.
Nationwide inflation stood at 1.3% in August 2020 – the highest level since March 2020 but still far lower than the Fed’s target of 2%.
The labour market shows some signs of improvement. The unemployment rate dropped to 10.2% in July 2020, after registering a record high of 14.7% in April 2020. But it remains far higher than the country’s average unemployment rate of 4.4% from 2015 to 2019.