Assetz said America is teetering on the brink of a housing market price reversal and investors would do well to focus on maximising rental income.
The latest statistics on the American market show quarterly growth of just 1 per cent, the lowest since 1999, according to the Assetz Property Investment Tracker.
Annual capital growth fell from 12.9 per cent in June to 9 per cent in September across the country, but it is possible that prices will drop on an annualised basis for the first time in decades, through 0 per cent into negative growth. House price sales have collapsed and the market is flooded with homes. It is not currently clear to what extent this will drag down house prices, but this is expected to become apparent over the next three months.
Stuart Law, managing director of Assetz, comments: “The U.S. is definitely in the danger zone but we are not currently certain how severe the downturn will be. Holiday home buyers who are getting regular use out of their property are unlikely to be affected in the long term, but investors who were hoping to sell their property on quickly are no longer set to gain and are likely to face losses if they sell now.
“My advice to them would be to take a 5–10 year view and focus on maximising letting potential. The rental market could benefit from any house price collapse and if the value of the dollar continues to tumble, international tourism will soar, providing great opportunity for rentals.”
The dollar’s fall in value highlights the benefit of buying with an overseas mortgage. The US dollar has fallen from $1.75 in April to $1.88 in September to £1 Sterling, which equates to about a 7 per cent loss of capital for British investors who bought there for cash or remortgaged their UK home in order to buy, last year. However, those who took out an American mortgage will see the value of their debt falling by the same amount, reducing their loss to just 7 per cent of their Sterling deposit.
The most damaging consequence of a house price crash would be the effect on consumer spending, which would have considerable implications for the wider world economy. It is unlikely the UK market would escape unscathed, but with the severe imbalance between supply and demand in the UK, the housing market would be well positioned to withstand any temporary slowdown in growth.
Law continued: “The big question is whether the U.S. will see the same soft landing that was seen in the UK. With far fewer restrictions on available land, I believe it is susceptible to negative growth as the effect of continuous rate rises over the last two years or so have caused a shock to the consumer, the effect of which is still to be fully realised.”
