American property prices are finally on the way back up. Move now to bag the best bargains, says Graham Norwood
Say it softly. But after years of misery, it looks as if the housing market across the pond is at long last making a comeback. If you’ve ever dreamt of owning a Florida holiday villa, or a chic Sex and the City-style New York apartment, it might be wise to buy it soon.
The latest figures show the first green shoots for the wider economy and a housing recovery. In the past six months, 1.9 million American jobs have been created, and unemployment is down from 10.4 per cent to 8.3 per cent. Economic growth is running at an annual 2.8 per cent. The car industry, often seen as a good barometer, is booming – General Motors sold 640,000 more vehicles last year than in 2010.
This is beginning to translate into optimism in the housing market. One builder, MDC Holdings, has reported a 32 per cent rise in orders for new houses. Another, Beazer Homes, predicts more orders in 2012 than in 2011.
The National Association of Realtors, an umbrella organisation for estate agents, predicts that sales of new homes will rise from 305,000 last year to 351,000 in 2012, while the number of new homes to be built will go up from 599,000 in 2011 to 702,000 this year.
“This is the longest period of sustained improvement we’ve seen since 2007,” says David Crowe, the chief economist of the US National Association of Housebuilders.
Yet house prices remain stubbornly low – but only for now. Average values of mainstream family homes across America are 32 per cent down on 2005, while many Florida agents admit prices are 50 to 75 per cent below their peaks.
The British estate agency Savills says that the most expensive homes in Manhattan – where many buyers are considered too wealthy to have been hit by the downturn – have risen in price in recent years, but only by 7 per cent.
All of this means that we might well be at the lowest point of the market. Brave purchasers and investors who buy now could make big gains if the recovery truly takes hold. The Association of Foreign Investors in Real Estate – a body of estate agents worldwide – has nominated the US as its “top tip” for investors in 2012.
“In real terms, property prices in the US are back to where they were around the turn of the millennium, with prices in some states 70 per cent below their 2006 peak,” says Ray Withers of Property Frontiers, a property consultancy.
Despite the country’s vastness, however, the majority of British buyers tend to congregate in three parts of Florida. The first is along the Gulf coast, south of Tampa Bay and north of the Everglades. The resort town of Naples has 50 golf courses and the region is upmarket, yet there are plenty of bargains – two- and three-bedroom homes with sea views can be yours for only £120,000.
The second Florida favourite is the sophisticated Atlantic coast. It has plenty of gated communities – you could bag a bargain four-bedroom house for only £120,000 these days.
Then there is central Florida – close to Disneyworld, the Epcot Centre and the Hollywood and Universal Studios – where there are thousands of properties on sale within a short drive of Orlando airport. A three-bedroom villa with a pool is going for as little as £95,000.
Most Brits buying in Florida let out their homes, too, so it is vital that they ensure the neighbourhood in which they buy is appropriately zoned.
“The majority of Orlando is zoned for short-term rental. If your heart is set on a family home with pool, you can get fantastic deals. Just make sure you have a good management company to look after the property in your absence,” says Adam Cornwell of Feltrim International, a consultancy which sells cut-price homes in the Sunshine State.
Last year, his firm sold 70 two-bedroom Florida apartments – originally marketed in 2008 at £228,000 each – for only £56,500. In recent months, however, the price has risen to £63,250.
For the wealthiest Britons wanting to buy Stateside, however, the big attraction is still New York.
Unlike the rest of the US, the Big Apple’s prices are back to levels last seen in 2005. “New York has had few foreclosures and most buyers are cash purchasers. The cheaper dollar, coupled with more affordable prices than London or Paris, help the market,” says Elizabeth Stribling of Stribling & Associates, a top-end estate agency in Manhattan.
Foreign buyers, including Britons, now purchase about 30 per cent of all new condominium developments in New York. But they are not cheap – a two-bedroom apartment in Midtown Manhattan will be £750,000 at least, while a smaller flat close to Central Park is around £650,000. In Brooklyn, an increasingly popular borough with Britons, a large three-bedroom apartment costs about £525,000.
As with all property markets – especially those returning from bust to boom – there are hidden catches which unwary buyers may miss. The first concerns property taxes, levied annually in many states. Public relations executive Laura Wilson, born in the US but living in London with her husband and daughter, recently considered buying a $250,000 (£160,000) holiday home in her native Texas before discovering this could cost $8,000 (£5,000) a year in taxes.
“Properties are appraised annually so if we made improvements our taxes would rise. We then started looking into what a bigger house would cost us in taxes as we’ve toyed with the idea of one day retiring to Texas. On a family home in Fort Worth costing around $1 million (£640,000), taxes would be over $25,000 (£16,000) a year. We may have to rethink our plans,” she says.
A second concern is over low-cost buy-to-let properties for sale in depressed areas, such as Detroit. Some homes are on sale for $25,000 or even less, and so appear to be good value with high rental returns, but they are often in areas riven with crime and deprivation.
“Apply common sense. You only need look as far as the local industries, job market, crime rates and so on to show what tenants you will attract. High yields are good but they could be theoretical if your tenant doesn’t pay and your property gets abused,” says Feltrim International’s Adam Cornwell.
For cannier buyers looking at safe locations, however, there is good news on mortgages. The easiest way for Britons to fund a holiday home is to remortgage in the UK and buy with cash but experts say it is straightforward to get a US mortgage instead. “It’s much easier to obtain one now, with loan-to-values higher than for those buying in Europe. It’s possible to get 70 or 75 per cent,” says Miranda John of brokerage SPF Private Clients.
Whatever financial route you take for a property, it looks as if the United States has become the land of opportunity once again for buyers who waste no time.
The old saying is that when America sneezes, Britain catches a cold. That was certainly the case when house prices fell. Will it apply now the US is recovering?
1. Comfort: is your chosen location snowed-in in winter or too hot in summer?
2. Access: make sure a home is easy to reach for yourself and possible holiday renters
3. Size: the most popular holiday lets are family villas and houses, not apartments
4. Facilities: in warm areas, homes with pools are a must for yourself or tenants
5. Year-round: check that local stores, attractions and services operate all year
6. Service charges: budget for these, especially in resorts – they could be thousands a year
7. Other charges: bear in mind that property taxes and utility “switch on” fees are applied in some states
8. If buying an urban buy-to-let, carefully investigate crime and the neighbourhood
9. States have different laws on taxing rental income – consult a financial adviser
10. Some states restrict how long foreign owners can stay each year