The recovery of the US property market after the crash in 2008 seems well on its way. Price appreciation is strong throughout the country, but in tandem with rising prices comes a severe strain on supply. The shortage of property in the US is now so acute that many analysts refer to it as a ‘drought’.
Throughout 2016, shortage of supply featured as one of the main characteristics of US property market. However, the lack of available homes has now reached dramatic levels. According to the National Association of Realtors (NAR), the supply of property currently sits at its lowest since NAR began to take records in 1999.
The historic lack of supply has prompted some analysts to refer to it as a ‘housing drought’ and certainly the US property market has never seen anything like it since 1999. Estate agents report inventory constraints across the nation with almost no metro areas registering strong supply.
The Florida market is just one example. The Sunshine State has registered low supply for a number of months and the latest figures show no signs of improvement. In February, the supply for single family home properties in Florida stood at 4.2 months. The level for townhouse-condo property came in slightly higher at 6.4 months, very slightly above the 6-month supply considered by experts to represent a balanced market.
Lack of new-build properties
Along with strong demand, lack of new housing starts constitutes the main cause of the problem. New-build properties in the US currently run at just 75 per cent of their historic average and there’s a serious shortage of new homes on the market.
Builders typically blame lack of available land for building as the reason for the low level of new homes on the US property market. They also cite high costs of materials and labour as additional causes.
“It’s hard to understate how important it will be for builders to continue adding new inventory to the market, especially in the low- and mid-priced segments where so much of the current home buyer demand lies,” said Svenja Gudell, Chief Economist at Zillow.
Another reason behind the shortage of homes lies in the popularity of buy-to-let investment in the US property market. Many investors have taken advantage of well-priced homes in desirable areas and let them for income flow. According to Lawrence Yun, Chief Economist at NAR, “Investors came in to get that cash flow, and the cash flow remains very positive”.
This cash flow looks set to continue particularly as the lower end of the market where buyers find affordability one of the biggest obstacles in their way to homeownership. “The healthy labour market is translating into greater job security, but affordability isn’t improving because home prices in some areas still outpace income by three times or more because of tight supply,” said Yun.
“Tight supply looks likely to characterise the US property market this year as well as last,” says Dies Poppeliers, Managing Director of BRIC Group. “The currently historic ‘drought’ lends itself to good buy-to-let opportunities to cater for those buyers who cannot afford to purchase a home.”
BRIC Group, an investment company specialising in global real estate opportunities, offers US real estate investments including turnkey properties in Florida and Houston, and land plots in Florida. BRIC Group is also developing The Coral resort, in Northeast Brazil, a luxury beachfront resort with land and villa investment opportunities. BRIC Group has been creating wealth for its clients since 1996 and has offices in Brazil, Dubai (consulting office), Hungary, Spain and the US.