Real Estate is Still a Viable Investment Option
We all know that the stock market in 2016 experienced some amazing gains compared to expected returns. But stocks weren’t alone. In a world of cheap credit and negative government bond yields, it’s no surprise that real estate prices have also been significantly growing. Prices of homes in the United States have marched steadily up over the past year. They have been pushed up by the demand for property and their shrinking supply. According to Standard & Poors/ Case-Shiller index, prices rose 5.3% year over year for the most recent month. In November, we saw the fastest rate of existing home buying in a decade. Interest rates went up around the beginning of the year so some homeowners wanted to lock down their mortgage before rates have the chance to go up again. But since inventory can’t keep up parts of the country are experiencing bidding wars on real estate.
The Fastest Growing Cities
Home prices in Seattle increased 10.4% in November from a year earlier, the biggest gain among the twenties cities tracked by the S&P/Case Shiller index. Portland came in second with a 10.1% gain. And Denver rounds out the top three cities at 8.7%. For anyone looking to get into the market for the spring and summer shopping season, housing data provider Zillow offers some good news. Some relief from higher prices may be on the horizon because the leveling of rental prices, especially in cities may cool demand just a bit, in time for the spring and summer shopping season for those home shoppers.
In terms of the global real estate market, there are some really hot cities right now. In one study, 77% of 150 international cities studied have experienced housing price gains. China stands out because its cities top the list. For example, Nanjing ranked the highest at a incredible 42.9% year over year price increase. Shanghai’s price jumped 39.5%. With a population of roughly 15 million, Shanghai is China’s largest city. Due to its popularity many people want to move there for work opportunities. But because of restricted land supply, its residents will have to pay more if they want to continue living there. According to Knight Frank, 80% of the top 10 cities for fastest growing prices globally in the third quarter in 2016 were in China. Furthermore, 10 Chinese cities recorded annual price growth over 20%. Knight Frank is a residential and commercial property consultancy founded in London by John Knight, Howard Frank and William Rutley in 1896. Knight Frank together with its New York-based affiliate Newmark Grubb Knight Frank is one of the world’s largest global property consultancies
Knight Frank’s international residential research analyst Katie Everett-Allen said in a recently circulated note: “Urbanization and rising household wealth is behind the surge in Chinese prices but it is far from uniform with smaller cities and rural markets lagging behind. China’s rapidly-rising urban house prices have not escaped the attention of policymakers with many cities seeing the tightening of mortgage lending, higher deposit requirements, and in some cases, a ban on non-local buyers. Home purchase restrictions even saw couples divorcing to enable them to buy more properties.”
With so much saturation in their own country, many Chinese real estate buyers are buying property in other parts of the world where there is less competition. This is not a new or unique idea. As the events of Brexit unfold a lot of British people are also looking to buy foreign property. This is why cities like Aukland and Wellingdon in New Zealand have seen huge foreign interest in their real estate market. Even Silicon Valley executives are buying homes in New Zealand because they think it’s far away from everything and would be a safe place to stay in case of future geopolitical unrest in the United States.
It looks like real estate across most of the developed world is a profitable asset to hold. The best place to invest in real estate for Americans is still in the U.S. for tax efficient reasons. REITs are a great way to invest in a broad selection of different properties. For example, Silver Bay Realty Trust (NYSE:SBY) invests in single family houses. The company focuses on acquiring, renovating, leasing, and managing single-family homes, in order to generate both rental income and long-term growth. The iShares Dow Jones U.S. Real Estate ETF (IYR) and the Vanguard REIT Index Fund (VNQ) are solid REIT index funds for investors who want to really spread out their risk.