Vision 2016

YDL has partnered with the No 1 real estate agency, Keller Williams, in metro Atlanta in order to find great flip deals for its investors. Among other perks, this gives YDL clients access to leading-edge real estate information, both at macro and micro level. Although our firm’s operations are based in Atlanta, it is also important for investors to keep an eye on the overall US economy and property market. In this newsletter, we therefore report on Gary Keller’s annual ‘US Vision’ presentation to staff.

US Property market trends

In brief, Keller explained that five important factors drive the US property market. These are:

  • Home sales: 2015 was the best year for home sales since 2006, and the 5th best in US history;
  • Home prices: US price growth in 2015 was 6.8% (6.5% in Atlanta, Georgia), just outside the four to six percent range that is considered sustainable;
  • Month’s supply of inventory: six months represents a balanced market. Countrywide, the supply is 4.8 months – showing a seller’s market that is not too far off a balanced market. Atlanta’s supply is 3.7 months, maintaining the seller’s market condition that began in 2012;
  • Mortgage rates: interest rates remained below four percent (at 3.85%) for almost all of 2015, helping to drive demand; and
  • Affordability in PerspectiveAffordability: with demand at an all-time high, affordability remained flat despite growing home prices. See ‘Affordability in Perspective’, which shows that you will now pay $251 less per month, on an adjusted basis, on a median-priced home mortgage, than you would have paid 20 years ago.

Distressed property sales spiked after the global credit crunch but have now mostly worked their way out of the system. Underwater homes continue to return to equity as prices rise, increasing the pool of homes that could be available to list over the next few years.

State ForecastSee also  ‘State Forecast’, which shows that Georgia is one of the states with the most favourable GDP forecast of 1.5 to 4 percent (Georgia is one of four states grouped together and marked in turquoise on the lower right-hand side).

State of the US economy

With growth ‘anaemic’ (in recovery from the 2007 to 2009 recession) and ‘debt still tight’, the national GDP is hurting. While GDP is currently between two and three percent, government would prefer it to be between four and five percent. The problem, says Keller, is that ‘we operate within a global economy: the formerly robust Chinese market has heralded a slowdown in growth; oil prices are low; and Europe is buckling under slow growth and low inflation’.

But consumer spending in the US is positive – a strong driver of the economy – and unemployment is very close to the ideal of five percent. Also, banks are
continuing to loosen mortgage lending for those who qualify. Almost all mortgage lenders surveyed showed that they would continue to maintain or ease credit standards, where increased consumer access to financing naturally means more sales. While new home construction continues to improve (up by 10.4%), the 715 000 homes started is still well below the historical average of one million.

While low-interest rates help with affordability, student debt is holding back the first-time homebuyer. This portion of the market is carrying debt from ‘unaffordable’ studies and when they become employed, must first pay off their loans before buying an entry-level property. On the other end of the spectrum, the luxury housing market is ‘amazingly strong’ – total wealth has grown by 69% and 30% of all millionaires in the world live in the US, creating a real opportunity for agents.

Techno age

‘While 89% of buyers use the Internet as a source in their search for potential properties, this is simply reflective of the digital age in which we live,’ said Keller. ‘We’re surprised it’s not 100%.’ Good news for agents is that despite this, 87 percent of consumers still employ an agent as their expertise is essential when negotiating a deal.

Hotshot new areas in the online space include showings via drones, live streaming in virtual reality and 3-D viewings. These features combine to create what Keller defines as ‘market pivots’; potential areas of huge growth where $2.6 billion dollars has already gone into funding these disruptive forms of technology, with 58.3% of that invested in search engines.

Keller warns, however, of the limited return on investment of online real-estate advertising, where spend has increased disproportionally to the buyers perusing and answering these adverts. Another pointer for his team, is that people should be encouraged to buy a house because they recognise the financial security of it (currently only 2% of buyers).

The percentage of clients who show up and have already identified the home/s they are most likely to purchase has remained the same for around 50 years, at one out of 10. Keller asks, ‘Is the Internet making home buyers independently smarter? No, in fact it is confusing them more; they’re taking longer to settle on a property.’ All evidence, he says, points to the fact that when you are confused, or market conditions appear confusing, you hire a professional to assist you. And stats show that in 2015, homes sold using an agent or broker were higher than ever before.

And the rent-versus-buy equation? Keller’s advice is not to listen to Wall Street, as owning a home is a ‘forced saving’ and an often-superior investment option, with a huge boost to net worth.

Wrapping up

YDL remains comfortable doing business in the US, and Atlanta in particular, as property fundamentals are supportive of our “flip” programme. Atlanta is a strong seller’s market, meaning less days on the market, and higher prices. Mortgage lending has been loosened, and affordability remains at attractive levels. This is positive for our exit strategy, which of course is the sale of our renovated homes.

Anton de LeeuwIf you’re looking to move some funds into US dollars as a hedge against the Rand, but want your money to work for you (compared to earning low-interest rates in an offshore bank account), give us a call on 011 465 7356  to find out more about our programme, or email anton@ydl.co.za.

Warm regards,

PS: I’ll be off to Atlanta this weekend to find some more great deals. I look forward to bringing you news when I get back.