While the United States has always been a home ownership country, where occupier owned homes have always far outweighed rented property, the current level of home ownership (70%) is high by historic standards. The country has just gone through the tail end of a housing boom that many believe is linked to the stock market that recently peaked at an all time high. Lately, the current financial crisis has been attributed to the unfettered deregulation and securitization of real estate mortgages in the United States. This led to a global speculative bubble in real estate and securities that burst in 2008.
The country has a population of over 300 million, with masses of strong ethnic groups spread across various parts of the nation. Even just a small swing in housing demand can have a massive impact on the market, as can a sharp cooling of interest. While the long term trend for US housing is still on an upward curve, there are risks for Expats looking to move to the US .
The country itself has the largest economy in the world, and in effect controls what happens in the worldwide economy – thereby giving the US population massive power over their trading partners. However, the country does depend on trade with South America and the Far East, and any slowdown in those regions can have a magnified effect on the economy.
Real Estate Market Performance in America
The housing market itself has benefited heavily over the last few years from a buoyant economy, relatively high employment security and historically low interest rates. This has further encouraged the American population to purchase their own homes, causing something a squeeze in the market place. While there are currently signs that the US economy is slowing, many investors are ignoring what may turn out to be very tell tale signs for the future. The problems centre around :
- Rising interest rates – Designed to slow down a once buoyant economy, there are signs that this tactic is slowly working and filtering through to the US economy, which will in turn filter through to the US housing market.
- Rising Personal Debt – The American population have historically been very strong savers, with the majority investing in the stock market and / or the property market. Recent figures show that many homeowners are starting to dip into their own savings in order to cover very high mortgages – a direct result of the booming housing market.
- Mortgage Defaults – The have been confirmed reports that a few of the more well known second tier mortgage lenders have been experiencing a marked increase in mortgage payment defaults from some of the higher risk customers. While you would expect this to transfer to the main prime mortgage market in time, many optimists seem unwilling to accept this.
- A Build Up of Inventories – In the housing boom America was awash with new housing starts, many of which are only just coming to fruition now. If demand were to slow any further, these new houses would have to be sold off at lower prices, causing a rerating of the housing market. Once the market starts to fall, many Americans will look to crystallize any gains from the last few years, thereby exerting yet more selling pressure.
Any expats looking to move to America in the short term may be presented with a buyers market, and the potential for some great bargains. UK Expats will also benefit from the strong pound against the dollar that has increased British spending power in the US. The past year’s financial distress has been a thing of the past as the market is now growing though at a slower rate.
Real Estate Costs in the USA
If you are looking to buy a property is the US, there are three main ways to find your very own dream home:
- Work Alone – While this may save you some costs (although the fact that many agents are paid by the seller would negate this) it can be very hard work finding the best houses for sale in your area. This will probably take up a lot of your time with potentially nothing at the end. Only for the brave!
- Call a Real Estate Agent – This is by far the most popular way to buy a house in the US – employ an expert in the sector and let them do the hard work for you. Tell the agent what you are after, what you can afford and any special requirements which you may have. Under a popular contract, the Agent is obliged to find something to suit your requirements, and make you aware of any potential pitfalls, costs, etc. The agent receives a commission from the seller thereby it is in their best interest to find a home which appeals to you.
- Sign A Buyers Contract – This is similar in set-up to the options above, except you have an arrangement with the buying agent – and maybe need to pay them a set fee or hourly rate for their work. Again, when a suitable property is located, the Agent will receive a slice of the seller agent’s commission.
Traditionally the costs associated with buying a property in the US will amount to something in the region of 7% to 8% of the purchase price. There are some tax variations state by state and it is essential that you take advice from a very early stage. The improved property market is now gaining strength as renewed optimism in the market stability has been observed. The differing states though have their own systems as indicated in a post at the America Expat Forum last March 23, 2009:
No idea about California but it may have similarities with Arizona. Here, the county assessor sends you a letter every other year stating the assessed value of your property. You have 90 days or so to file an appeal or that’s the assessed value of your property for the next 2 years.