Posted on: February 27, 2013
At MSR Americas we are frequently asked what are the top indicators of a housing market’s direction and stability, broadly speaking. We recently provided a comprehensive survey of the 2012 U.S. housing market year in review, and concluded that the 2013 year has already begun with a strong carryover momentum.
Here, then, are four significant influencers of the U.S. investment property market for 2013:
(1) Interest Rates: Low borrowing rates are a crucial factor in real estate market shifts. Buyers are attracted by low interest rates. The American Federal Reserve recently pledged in December to continue to leave the benchmark rate at near zero, going one unusual step further by tying the rate to the American unemployment rate conditionally promising to leave it untouched until 2015 or the unemployment drops to 6.5%.
(2) Unemployment Rate: The American unemployment rate shifted slightly to 7.9% just prior to the U.S. presidential election, suggesting a gradually strengthening economy. Some experts, however, see a healthy housing market as a greater indicator of a healthy economy than the unemployment rate. While the housing market cannot sustain an economy entirely, it certainly can help lift it, which it did in 2012. The improving unemployment rate combined with a healthier real estate market suggests a strong forward motion for the housing market in 2013.
(3) Credit Availability: According to a new report from CBS’s Money Watch, “U.S. Housing Market Finally Ready for Takeoff?” the greatest “impact on real estate this year is the availability of credit.” Again, however, we have already seen the result of tightening credit in the Florida market, where many employed former owners have not been able to return to home ownership because of restrictive borrowing conditions.
For investment property ownership, this has a positive outcome as the rental market has lower supply with higher demand, driving up rents. Market conditions incrementally improve because only highly qualified buyers are entering the ownership market.
(4) Inventory: Inventory of unsold homes are the lowest in the United States since the housing crisis. Low inventory contributes to a healthy equilibrium after the spat of foreclosures and short sales in many states.
“In many markets across the country the inventory is currently at normal, sustainable levels,” says Ryan Zuckerman, president of housing research firm HomeHub. “There isn’t an oversupply of homes anymore [ . . . ] This change is an extremely positive sign because it is signaling a change in supply and demand. The supply is decreasing while demand is increasing.” Balanced inventory levels imply healthy markets, particularly for Florida.
MSR Americas has long known the value of Florida rental investment properties and consequently targets established, liveable communities for our clients, who enjoy consistent net rental revenue of 8 to 10% returns on their investment and the potential for significant capital appreciation.
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