US real estate market: current situation

Briefly about the main thing

All experts agree that the dynamic US real estate market is always interesting to observe, and for a competent investment it is very important to know the main trends and moods of this vast and so diverse sector.

Today, foreigners find US real estate transactions more attractive than ever. They are not deterred by potential risks, which, however, are always and everywhere. These include uneven market sentiment (depression in Detroit, a peak with a tendency to overheat in California), the need to deal with the laws of another state, currency fluctuations, etc. And while local American investors are looking for high incomes abroad, representatives of other states are using the recovered market to conclude the most profitable deals with US facilities.

The steadily growing inflow of capital to the American markets, as well as the limited volume of supply, are gradually changing the rules of the game, which, in fact, encourages investors to make new investments in liquid real estate in New York, California and Florida, states that have been loved from time immemorial not only by investors from Russia, but also by representatives of China and Central Asia.

The traditional ten leaders in real estate investments are formed by the country's largest cities: New York, Los Angeles, San Francisco, Washington, Seattle, Boston, Atlanta, Miami, Austin and Houston. However, most of these cities have either exhausted their investment potential, or the entrance ticket to this market is so expensive that not all investors can afford it. A sharp decline in the air transportation market from Russia to the United States also contributed to the cooling of the interest of Russian buyers in the facilities of Seattle, Boston, Atlanta and Washington.

How to get there

You can only fly to New York and Los Angeles without transfers from Moscow, and to get to Miami, Orlando, Atlanta, Chicago, Dallas, Seattle or Salt Lake City you will have to make at least one transfer.

A ten-hour non-stop flight from Moscow to New York and back by Aeroflot will cost 29,000 rubles. The cost of a ticket with a transfer is cheaper, about 22,000 round-trip (Swiss Airlines, Lufthansa, United Airlines and many others). A direct flight to Los Angeles, located on the other coast of the country, lasts a little more than 12 hours, and costs almost twice as much (for example, Aeroflot, 48,000 rubles). And air tickets with a transfer at one of the airports in Europe will be noticeably cheaper. So, for 26,000 you can fly to L.A. with a transfer in Vienna (Austrian Airlines).

The situation on the real estate market

According to the large American portal Zillow, as of the end of January 2017, the average cost of real estate in the United States was $195,300. The price increase compared to the previous month was 0.6%, and in dynamics over the past year, prices increased by 7.2%. According to forecasts of specialists of the same portal and representatives of the National Association of Realtors (NAR), by January 2018, the average cost of real estate in the United States will increase by 3%.

This is still less than the historical maximum recorded in April 2007, when the average cost of a housing unit in the country was $196,000, but the slow and systematic increase in value has now become obvious. Over the past 10-12 years, the trends of the US real estate market have resembled a roller coaster: wave-like peaks of highs were replaced by equally rapid lows, then setting new world records of value, then "devaluing" entire cities. Today, experts predict that as soon as the uncertainty about the new White House administration and the traditional seasonal decline in activity pass, the situation will develop according to the scenario of high demand.  

According to the National Association of Developers, the construction of new facilities increased from 784,000 units in 2012 to a projected level of 1.162 million in 2016. Nevertheless, there is still a shortage of residential facilities at the national level. In 2017, 1,242 million new housing units are to be built in the United States, and the trend of growth in construction activity will continue in the next five years. While real estate prices should not make sharp jumps, they are also projected to maintain an upward trend.

Advantages for buyers

When buying real estate for yourself, you should proceed from two parameters: personal preferences (by region, climate, proximity to the ocean or mountains, love of noisy megacities or the desire for a quiet life in "one-story America") and the availability of jobs to realize your own talents. Of course, most of the issues can be eliminated by doing "homework", but you need to make a final decision about the region of buying real estate for your own use on the spot, seeing everything with your own eyes.

If real estate in the United States is purchased for investment purposes, then these should be liquid objects in cities with a high number of potential tenants. Thus, experts of the national real estate market identify the following cities: Austin (Texas), where 42% of the population rents housing, and the average rental rate is $1,216 per month; Las Vegas (Nevada), where almost half of the population (47%) lives in rented housing and pays about $1,084 for it and the city of Modesto in California - 43% of residents rent real estate at a price of about $1,218 per month. Experts note a good rental potential in the cities of Fayetteville;(Arkansas), Riverside (California), Salem (Oregon), San Antonio (Texas) and Phoenix (Arizona) - in all cities, the percentage of residents who do not own their own housing fluctuates around 35-37% of the total population, which allows investors to earn money by renting real estate. Housing in one of the listed cities is able to generate rental income from $891 per month.

In major cities such as San Francisco, Los Angeles, Oakland, Boston and New York, the demand for rental real estate is also growing rapidly. The economic effect of buying a home in a city with a large number of able-bodied population and a low unemployment rate can reach 30% when renting out real estate.

The most interesting regions for investment

New York

Average cost of real estate: $384 202

Average rental Income:$1,266

The Big Apple or the Capital of the World is a colorful, multinational and cosmopolitan metropolis that never sleeps and beckons with the illusion of an easy realization of the American dream. Each of the five boroughs of Manhattan, Brooklyn, Queens, the Bronx and Staten Island can offer different types of housing, from apartments and condominiums to detached houses and luxury mansions.  

A studio (30 sq. m.) in the Chelsea Historic District on Manhattan Island can be purchased for $390,000. Renting out this property is able to generate about $3,500 per month. A slightly larger studio (40 sq. m.), but already in less prestigious Brooklyn costs about $340,000, and you can rent it for $2,350 per month. Apartments on the famous Fifth Avenue cost from $1.5 million. The most budget housing in New York can be found in East Harlem, where studios cost from $160,000, but given that this area has a dubious reputation for being the most criminal, local facilities cannot be called either liquid or investment attractive.

Miami (Florida)

Average Property Value: $232,449

Average rental income: $1,149

Miami is a permanent hit of the US real estate market, «rich» in supply, an active market. It attracts all kinds of buyers, from oligarchs to middle-income families, from students to young professionals. Miami is very fond of young people, because there are all opportunities to build a career and enjoy all the privileges of an active American lifestyle. It is not for nothing that the most in demand here are employees of trading enterprises, the banking sector and the IT industry: the lion's share of vacancies is received by people under 35 years of age. Miami Beach, a resort town in the suburbs of Miami, still retains the glory of the entertainment epicenter of the country. And such Miami suburbs as Key Biscayne, Coral Gables and Doral are considered ideal for a quiet family life. As part of the gentrification of neglected areas, new residential complexes and commercial real estate began to be built in many communities of the city. And one more point: experts note that those wishing to lead a "patriarchal" lifestyle should take into account the fact that the population of Miami is very loyal to non-traditional families.

As usual, the most budget objects of the city can be found in emigrant areas, they are the same asthe rule, and the most criminal. In Miami, this is the Little Hayti neighborhood, where immigrants from Haiti and other Caribbean countries live. Here, housing (40 sq. m.) in a condominium costs from $65,500, but you should not have any illusions about the liquidity and profitability of the object, and it will be difficult to rent and resell it. A quality apartment in a safe area and in close proximity to the ocean costs from $330,000-400,000. Houses in Miami-Dade County cost from $220,000, but the prices of prestigious villas with pools and private berths start from $2 million.

Los Angeles (California)

Average Property Value: $487 716

Average rental income: $1,271

Despite the fact that the City of Angels is simultaneously considered the epicenter of show business and an overloaded metropolis, the truth about the second largest agglomeration of the United States is that dreams really come true here. That's how the famous millionaire and a young actress, "trying" herself in Hollywood, will answer the question of why they live here. Beautiful, sunny, never sleeping L.A. is hope and ambition, passion and fashion. Locals call themselves nothing else than the beautiful word Angelenos.

Two-bedroom apartments in Los Angeles cost from $200 000 (you can find them for $100 000, but on average high-quality objects cost $300 000-350 000), and, according to forecasts, these prices will increase by 2% within a year. Spacious townhouses in the legendary Beverly Hills cost $ 1.3 million, and the average cost of a house in the prestigious Bel Air district hovers around $ 4 million. Despite the relatively high cost of housing in Los Angeles, investments here are more than attractive, for example, the owner of a two-bedroom apartment in West Hollywood (Los Angeles agglomeration) worth $800,000-$ 1 million will easily rent it out for $2500-3000 per month, and the demand for such real estate is quite high.

As for San Francisco, the situation here is fueled by a shortage of housing stock and a rapidly developing labor market. Everything is logical: in regions with low construction activity, a healthy labor market and a strong demographic component, the demand for housing will always be consistently high.

Silicon Valley, or rather Silicon Valley, has long been an integral part of San Francisco. The name so often used is only a conditional territory that cannot be found on geographical maps. The largest and most significant cities here are San Jose and Palo Alto, and local companies are heard even by those inhabitants of the planet who are far from the world of high technology. It is in Silicon Valley that the densest concentration of IT industry specialists is recorded, who are considered among the highest paid in the country. The rental market here is so scarce that many corporate employees are moving to nearby Sacramento and other cities inland. High solvency and a relative shortage of housing have led to the fact that real estate prices on average in San Francisco County are quite high (an average of $ 700,875), and from an investment point of view these objects are not very attractive. So, in order to get $1,000 of rental income, an investor in San Francisco must invest $551,000, the highest figure in the entire United States.

The average cost of a house in San Jose, the unspoken capital of Silicon Valley, is $829,792, which is almost four times the average cost of a house in the United States. And in San Francisco itself for an apartment (74 sq. m. m) with one bedroom in a new building in the prestigious Lower Pacific Heights area, you will have to pay $930,000.

Promising directions

In addition to large metropolitan areas, real estate market experts engaged in constant analysis of the segment publish their forecasts of the most "hot" points, and here is their opinion on which cities in the United States should buy real estate in 2017.

Dallas (Texas)

Average property value: $233,000

Cost growth forecast for the next three years: +31%

In 2017, one of the largest Texas cities is leading in the ranking of the most popular destinations for real estate investment, whereas in 2016 Dallas occupied only the sixth place. Experts predict that in the three-year perspective, prices here will increase by 31%, and this is the most optimistic indicator among all major US cities. At the end of last year, the number of jobs here increased by almost 4%, and housing prices increased by 9%. In the next three years, the population growth will exceed 6%, which means that the demand for housing and real estate prices will only grow. In comparison with the average indicators and incomes of the local population, Dallas real estate is currently considered undervalued.

Jacksonville (Florida)

Average Property value: $225 000

Cost growth forecast for the next three years: +30%

This is the most populous city in sunny Florida, whose population increases by an average of 5% annually. Taking into account the fact that the market for jobs and labor migration is also growing, housing in Jacksonville seems to be the best investment option. According to experts, local real estate is undervalued by an average of 8%.

Orlando (Florida)

Average property value: $219,000

Cost growth forecast for the next three years: +28%

"The economy strengthening at a good pace, population growth and an increase in the number of jobs open up a number of prospects for investors in local real estate," says the head of the analytical agency Local Market Monitor, USA, and it is worth listening to such authoritative recommendations.

Seattle (Washington State)

Average property value: $416,000

Cost growth forecast for the next three years: +26%

Over the past year, it was in Seattle that a record increase in real estate prices was recorded by 12%, while the average price tag is among the three highest in the country. Experts tend to associate the current situation with the inability of builders to keep up with the growing population and the influx of labor. Over the next three years, the demand for both buying and renting will exceed the supply, which means that it promises considerable dividends to those who have time to invest in a growing market.

Salt Lake City (Utah)

Average Property Value: $277,000

Cost growth forecast for the next three years: +25%

The largest city in the state and the capital of the XIX Winter Olympic Games is also considered one of the leaders of the modern real estate market in the USA. Every year, housing prices here grow by an average of 8%, and the number of jobs and new residents of the city increase by 2-3%. And although the prices of local real estate cannot be called undervalued, they still have growth potential.

Subtleties of the purchase and sale process

For foreigners, there are a number of restrictions on owning real estate in America, but for those who purchase housing for subsequent rental, the legal limits are insignificant. At the federal level, only a few restrictions apply to non-residents (for example, on the purchase of agricultural land by foreigners or the Oklahoma Law on the impossibility of acquiring land by foreigners), but for practical purposes in most cases they do not matter much.

Each state has its own subtleties of the procedure for buying real estate, as well as there are its own specifics depending on the counties and cities of one state. For foreigners who do not know all the details of the process and the nuances of legislation, it is easier, faster and more profitable to hire an agent when buying American housing. His services will cost about 6% of the real estate value. In addition, as a rule, these costs are borne by the seller.

On the shoulders of the buyer falls the need to pay title insurance (0.5-1%) and registry fees (0.2-0.5%). The costs of legal support, according to established practice, are divided equally between the seller and the buyer (0.5-1% each). When selling, it is necessary to pay a tax on the transfer of ownership (1-1.425%) and a commission fee to the agent (about 6%, but the exact amount is negotiated individually). It is worth noting that the tax on the transfer of ownership or the so-called TransferThe tax in the five states of Mississippi, Missouri, New Mexico, North Dakota and Wyoming does not apply at all.

Taxation of American real estate

Non-residents are required to pay income tax on income received in the United States, and they can file a declaration on their own behalf, from the head of the household, from a married couple whose incomes are counted jointly, and from a married couple whose incomes are counted separately. Federal income tax is calculated on a progressive scale and, depending on the level of income, has a rate from 10% to 39.60%. There are also state taxes, the rates of which are different in each state, for example, in the state of New York, this tax varies from 4% to 8.82%. Non-residents are required to pay tax on rental income both at the federal and state level, where this income is received.

When selling real estate that has been owned for more than a year, the seller is obliged to pay a tax of 20%, if the period of ownership of the object is less than 12 months, then the transaction is considered an investment and is subject to taxation as a standard income tax (up to 39.6%). However, with the help of a competent tax specialist, you can optimize (reduce) the amount of tax by writing off the costs of maintaining the property (for example, mortgage interest, insurance, payments to the homeowner's association, repair costs, etc.).

Portal HomesOverseas.ru thanks Kristina Menschikova for her help in preparing the article (Advex Corporation.Real Estate»), Yana Dobrovolskaya (Country Plus) and Vladimir Oleynikov (Rover Group Realty).

photo: Dmitry Kruglyak / flickr

Olga Shoshina