Leap of demand, prices growing, mortgages with minimum rates, increase in rent fees, payments on time.
Among Americans, home remains the primary good by definition and therefore investing in this typology of property proves to be a more than sound option for international investors.
Milan, June 2020 – when the COVID-19 pandemics reached the States, most analysts foreshadowed the breakdown of real estate market, but the first data now available are telling a whole different story. This is what emerges from the periodic analysis conducted by OPISAS REinsight, the observatory on real estate markets promoted by OPISAS, international group specialized in residential portfolios with a focus on affordable and already rented properties exclusively in the USA, and which since 2008 has transacted more than 3,800 units.
Figures from May and June clearly show and define the framework for a steady rebound, at least for what concerns residential market.
In fact, demand skyrocketed by +25% above pre-covid level (it was down at -30% in April, according to Redfin, one of the foremost US broker networks) and potential buyers seem to not give credit to a possible second outbreak of the pandemic nor to the protests raging all over the country.
A strong support to demand should come from the ever-decreasing interest rates of loans. According to Fannie Mae, the yearly average rate for 2020 will be 3.2%, definitely a decline from the 3.9% in 2019. That would break the record of 3.65% set in 2016, according to data by Freddie Mac. Fannie Mae also foresees that rates will break the 3% wall and drop to 2.9% in 2021.
The volume of real estate for sale decreased as well, -5% when compared to the same period of the previous year, an overall modest percentage especially when considering the strict lockdown measures enforced in most of the country.
The lack of homes for sale, indeed, afflicts US real estate market from well long before COVID-19 appeared, especially for what concerns new constructions. Suffice to consider that from 2009 to 2019 American developers sold 5.2 million new single-family houses; in the previous decade, instead, figures were exactly the double with 10.4 million new houses sold (Source: U.S. Census Bureau). Pandemic has definitely worsened the situation. Therefore, the amount of new single-family houses that will be completed will drop to 770,000 units this year, the lowest point since 2015 and the 1.47 million properties on market registered in late April has been the lowest figure ever recorded according to NAR.
The combined action of demand increase and supply decrease led to a growth of prices: +3.1% for actual sales, and +9.9% for the initially proposed amount (Source: Redfin).
But how to explain such phenomenon? What is happening seems to be a strong change in purchase behaviors of Americans, indirectly determined by lockdown measures. All of a sudden, millions of Americans found themselves forced to live with their own families under the same roof H24 realizing, for instance, that their home was not large enough to ensure privacy and comfort to each component. Or, as smart working spread out, many decided to move to less chaotic neighborhoods with better services for their kids and family.
In short, once again Americans’ social, working and real estate dynamism is proving to be one of the main drivers for this market.
Figures of residential rents are, if possible, even more striking. The trend of rent values, in fact, didn’t even change. The Consumer Price Index (CPI) related to the average of residential rents of Primary Residence in US urban areas has, indeed, kept growing during the whole pandemic period, marking +3.49% in May year-on-year.
Punctuality of payments has also remained more than stable, thus making an investment in US residential market with rent yield one of the soundest options in the landscape of international real estate.
In fact, this May, 95.1% of rents have been regularly paid.
Again, how could this apparent inconsistency with economic reality be explained? Very likely, the inputs promptly issued by the federal government, such as CARES Act and other programs, have provided an unprecedented financial aid to households. In April, the US average personal income had increased by +10.5% on a monthly basis, more than twice the previous record. Government social aid expenses increased by 90% and hit another historical record of $ 6.300 billion.
Figures clearly show that the average American, even if going through hardships, decided to use part of the aforementioned federal aid for paying its rent fees first. That confirms once more that for Americans having a roof above their head is the primary need by definition.
Now the signals of economic recovery are more than substantial and, with surprising speed, real economy is moving on again, stacking and in perspective replacing the still ongoing government aid.
In May, work market showed an unexpected and marked inversion, with 2.54 new million jobs. Analysts previously agreed on expecting a further -8 million jobs decrease, but the recovery capabilities of American economy and the positive impact of the government’s efforts in the framework of the occupancy protection program worth $ 2,000 billion contributed to this decisive turnabout.
On top of that, retail sales rebounded in May with +17.7% ($ 486 billions), when thousands of shops and restaurants reopened and the combined action of federal stimuli and tax refunds fueled consumption.
The United States therefore once more prove to be highly flexible and reactive: not only for their speed and range of public expenses and monetary policy maneuvers, but for the very nature of their economy and society. If it is true that falls are faster and more intense, the American system manages to get up earlier and with more stamina. This scenario seems now more than plausible, at least for what concerns American economy and in particular residential investments with rent yield in the USA.