US real estate market: prospects for buyers in 2019
Why are American houses and apartments now more attractive than ever to investors? What objects are Russians buying in New York? And why is it worth the haste to join the EB-5 immigration program?
Panchuk Inna. US real estate market
About the author: Inna Panchuk, Head of US and Canada Department, Moscow Sotheby’s International Realty
In 2008, when the crisis of mortgage lending reached its apogee, real estate prices in the United States fell to a record low across the country, the decline reached 30%. After a period of slow and painful recession, thanks to the success in the economy, the real estate market began to recover.
This was followed by a real boom with a double-digit increase in real estate prices, numerous new projects and an increase in customer demand over the course of several years. In 2018, experts again observed a slowdown in sales in the secondary housing market: the number of transactions reduced by an average of 4% on an annualized basis.
In my opinion, changes in mortgage rates and a slowdown in sales will allow buyers to form stronger arguments for “bargaining” with sellers. Surely, the Fed will raise the short-term interest rate three or four times more in 2019, which will increase the value of the mortgage to 5.5% per annum. This will accelerate the adjustment of the market from the “seller’s market” to the “buyer’s market”.
What does this mean in practice? Depending on the location and project, buyers can now count on discounts of up to 20%, and in some cases, 25%. Some of our clients do wholesale when they buy several apartments from a developer at the same time. In such cases, the discount can be significant and reach 30%.
Thus, the US real estate market is currently favorable for the buyer, especially the international investor, who purchases real estate without attracting mortgage lending.
Learn all about the procedure for buying property in the US
New York in trend
More than 20,000 new apartments will be on sale and rent in New York this year, mainly in areas such as Brooklyn, Manhattan and Queens. Expected high demand for affordable housing. But most of the apartments in the glittering towers, many of which were conceived at the height of the housing boom, will enter the already saturated market and are unlikely to find buyers before the end of the year. According to statistics from Sotheby`s International Realty, the pace of sales slowed down significantly, and in 2018 the average selling price fell by 7% to $ 18,430 per sq.m.
Since last spring, the agency commission has increased, so sellers are trying to stimulate agents to promote their objects. Some developers offer to pay property transfer tax or general fees for a year or more for customers. So, in November 2018, the developer Extell announced that instead of clients, it would pay general fees for their apartments for several years.
Lower prices and the flexibility of developers allow us to rely on successful acquisitions, especially in real estate development projects that have just entered the market. The real estate market is cyclical and wave-like, after the decline in prices usually begins to rise. Russian developers are actively investing in real estate in New York and one of our current cases, IRR shows about 30%.
Among our clients purchasing property in New York, there are several categories of buyers:
Buyers of Pied-à-terre or resort housing – they come to the United States to relax or to do business for a short time several times a year and want to stay there in their own apartment. Such clients buy real estate in different price categories – from $ 1 million for a two-room apartment to $ 50 million for a penthouse or townhouse in Manhattan.
Permanent property buyers buy apartments with two, three rooms and more. Prices range from $ 2 million, depending on the market, but the average check is $ 5 million. In New York, it is estimated that the average successful Manhattan resident can afford an apartment worth $ 10 million.
Investors – usually make wholesale purchases of residential real estate, make investments in commercial and development projects. The budget of this category of buyers varies from $ 10 million to $ 100 million.
Here’s what you can buy in New York right now:
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Russians are coming
Russian investors traditionally invest in American real estate. A few years ago, they made the biggest deals in the history of the market. In 2008, Dmitry Rybolovlev, co-owner of Uralkali, acquired for the record $ 95 million six acres of Donald Trump’s estate in Palm Beach. However, his record was broken by the co-owner of Mail.ru Group and the DST Global investment fund Yuri Milner in 2011, having bought a villa in California for $ 100 million in Silicon Valley in California.