One of the important differences is the system of registration of property rights to real estate. In the USA, the legal registration of the transaction is carried out by the so-called title company. All financial flows accompanying the process of buying and selling real estate pass through it. She is also responsible for checking contracts and certifying documents. Traditionally, title companies in the United States insure their activities.
Everything is based on agents
The US market differs from the European one in the system of work of real estate agents, as well as their higher level of qualification. Professional market participants – brokers and realtors – use a single multi-listing system (MLS). It contains up-to-date, reliable and maximally complete data on real estate properties offered for sale throughout the country. With the help of the MLS, you can get information about the appearance of the object, its location, the year of construction, the material of the walls, the total number of rooms, bedrooms and bathrooms, the land plot and much more.
Although access to the multi-listing is possible only for professionals, there are Internet portals where you can get information from the MLS without specifying the address of the objects, but with the contacts of realtors involved in the sale of each specific object. The largest of these portals is www.realtor.com , where information from the territorial MLAs of all states is combined. Within a few seconds, you can find relevant offers anywhere in the country on this portal.
The accreditation of a realtor in the MLS gives him many advantages and inspires confidence in the buyer. According to the terms of access to the MLS, realtors representing the interests of the seller of real estate must share commissions with realtors who have found a buyer. This allows you to make transactions openly and with mutual benefit, and the buyer of the property does not have to pay any commission at all. Each offer in the MLS has its own unique code that identifies the property and the agent with whom the contract for its sale is concluded. This way, any intermediaries and artificial overpricing are excluded.
Let's talk about prices
The most expensive cities in terms of the cost of residential real estate in the States are considered to be San Francisco, Los Angeles, New York, Boston and Miami. For example, the average house price in San Francisco is three times higher than the national average. If we talk about absolute figures, then the cost of 1 sq. m. m in modern complexes in Miami starts from $8000 and reaches up to $20,000, and in the most prestigious areas of New York Manhattan, the price per 1 sq. m. An apartment over $20,000 is the norm, and the average cost of an apartment is $1.38 million. Less expensive, but also prestigious and high-quality housing can be found, for example, in Georgia and Florida.
Over the past 10 years, the average home price in the United States, adjusted for inflation, has increased by 45%. In Chicago, the price increase over this period was 35%, in Miami – 80%, in Boston and New York - 85%, in Los Angeles – 100%. However, by 2006, the growth rate had decreased, and in the third quarter of 2006, the national average value of real estate in general decreased slightly – for the first time in many years. First of all, because the supply of housing has increased.
The U.S. housing market is currently experiencing a typical glut. The number of houses on the secondary market offered for sale increased by 1.9% in October 2006 to 3.85 million. The average exposure time of an ordinary apartment in New York is 144 days. "The current level of sales," says Evgeny Ivanov from the real estate agency Clifford Capital, "is below its potential, which is due to psychological factors. Potential buyers have now chosen a wait-and-see position, but I believe that the volume of transactions will increase in the first quarter of 2007."
The forecasts are confirmed by the fact that in most regions of the United States there are all conditions for the purchase of houses by Americans themselves. First of all, this applies to the southern regions of the country – Americans are increasingly moving from north to south. The US population is growing, and many new jobs are emerging. Another important condition is that already small mortgage rates are falling.
How to live on credit
The United States has a well-developed and well-established mortgage system. The vast majority of Americans purchase real estate precisely on credit, which they then pay off almost all their lives. At the same time, the number of transactions related to real estate secured is quite large. The house can be sold by "transferring" the loan to a new facility, you can refinance the initial loan on more attractive terms, or you can get a loan for an amount equal to the increase in the value of the property, which can then be used at your discretion. In 2005, Americans received $860 billion in this way.
Two types of mortgages are most common in the United States – with a fixed and with a "floating" interest rate. In the first case, the percentage and the amount of the monthly payment are unchanged throughout the entire term of the loan. The increase in the payment amount can only be caused by an increase in the cost of insurance or an increase in property taxes due to a revaluation of the value of assets. In the case of regulated interest rates, the amount of loan repayments depends on changes in various market indices. The most widely used loans are based on PRIME RATE – the rates set by American banks for the most reliable lenders on short-term loans. Another common index used in calculating loans is the LIBOR rate on the London interbank deposit market.
The housing mortgage lending model adopted in the United States is based on a powerful secondary mortgage securities market, which provides an influx of financial resources into the primary mortgage market. Mortgage-backed debt accounts for 40% of the American stock market, and thus the situation in the housing loan market directly affects the economy of both the United States and the world.
Mortgage banks usually entrust the initial loan processing to special organizations, the so-called "mortgage brokers". They collect information about the borrower, assess the risk of the loan, etc. In case of a positive decision on granting a loan, two documents are drawn up. First, a debt obligation that regulates all loan issues – the discount interest rate, the timing and procedure for making payments, penalties for postponement, etc. Secondly, a mortgage agreement specifying the rights and obligations of the parties. The need for two documents is related to the fact that loans can be sold in the future.
Loans issued by the bank are bundled and sold to specialized organizations, for example, the Federal National Mortgage Association (Fanny Mae). The bank puts the proceeds back into circulation, and the mortgage organization, having bought out a certain number of loans, issues mortgage-backed securities. These securities can be purchased by both large investors and private individuals. The State exercises control over the issue of mortgage-backed securities traded on the secondary market.
The American mortgage model is considered to be very effective and stable, largely due to the separation of powers to control the market. The primary mortgage lending market is regulated at the regional level by state governments, and the secondary market is regulated by the federal center. "Thanks to this," comments Evgeny Ivanov, "the peculiarities inherent in the market in different territories are taken into account, and there is no disorder in providing the credit market with resources. As a result, mortgages play a very important social and economic role."
A loan from an American bank can be obtained by both a US citizen and a foreigner. The deposit amount for foreign investors is usually 25-30%, the loan repayment period depends on the type of contract and the borrower's income and ranges from 15 to 30 years. The interest rate for the loan is 67% per year. In October 2006, the average rate of a 30-year mortgage loan in the United States was 6.36%, in September – 6.40%. For comparison, in October 2005, this figure was 6.07%. It should also be noted that loans are issued to individuals only for the purchase of ready-made housing.
The states began to build less
The state of the construction market in the United States is monitored no less carefully than the mortgage market. There are certain indicators that characterize each of the stages of construction. These indicators are very sensitive to the level of interest rates, and also largely depend on the level of income of the population. Therefore, the growth of activity in the construction industry is possible only with a good state of the economy, which in turn leads to the strengthening of the national currency and the growth of the stock market.
The optimal indicators for the volume of construction permits are between 1.5 million and 2 million houses per year – this corresponds to a healthy state of the economy. A decrease in this indicator indicates possible economic difficulties. In 2006, this figure fell by 6.3%, to the lowest level since December 1997 – 1.535 million homes. Along with the reduction in the pace of construction, a decrease in average US prices was also noted.
Of course, such a huge country as the United States is characterized by a variety of prices and real estate market trends in various states. The slight decrease in national average prices observed in 2006 did not affect all regions, moreover, analysts believe that by the end of next year, the secondary markethousing prices will rise by 2.8–3%, after which a certain stabilization will occur. In general, the market is expected to grow by 5-7% in 2007. For comparison, in 2005, the price increase was 13.4%. Vladimir Davydov, President of Florida Dream Realty & Mortgage, believes that in the first half of 2007, the US real estate market is favorable for both real estate buyers and sellers, and in the second half of the year – for buyers, the same applies to 2008. But the next, 2009, according to his forecasts, it will be especially profitable for the sale of housing.
A new rise in the market may also be facilitated by a surge in demand for housing from the so–called baby boomers - people born during a period of a sharp increase in the birth rate. Representatives of the last such generation, who were born in the 1980s, are now receiving higher education in colleges, getting a job and in the near future they will think about buying their own housing.
The main advantage of the US real estate market is that it provides an opportunity to make a profit, excluding the possibility of risk. According to experts, all conditions are now favorable for buying real estate in the United States. A pause in price growth is perfect for taking the time to choose a suitable object, and the prospects for further price increases promise good profits. In addition, the weakening of the dollar also contributes to investments in the United States.
