The United States Real Estate Market

The year 2007 brought with it a severe economic crisis in the United States (known as the sub-prime crisis) predicated partially by the inability of many individuals to meet their monthly mortgage payment. As a result, many homeowners were forced to foreclose, and the banks swallowed up a vast amount of real estate. In turn, the banks were inclined to sell their newfound property, leading to a dramatic rise in the amount of available real estate and a subsequent drop in real estate prices.

While other financial sectors (like the US stock market) began to recover in 2010, the real estate market continued its downward spiral until 2012.

The statistics are mind blowing: Property value plummeted an average of 30% between 2007 and 2012, whereas in cities such as San Francisco, Las Vegas, Phoenix and others prices tumbled to below 50% of their pre crisis value.

This reality has opened up tremendous opportunity for investment in the United States real estate market.

Beginning of the US housing recovery from 2012 until today

According to the Case-Shiller Index and The New York Times, property value has appreciated an average of 20% during the aforementioned time period, with the cities having suffered the most drastic setbacks during the recession experiencing rising property values of over 40%. The most recent report issued by the S&P Case-Shiller Home Price Index indicates that home prices have risen 12.4% from July 2012 until July 2013 , the largest increase in over 7 years.

For exact real estate prices according to region and investment date click here.

For example: While property value in San Francisco  has risen 41% from January 2012 until July 2013, they are still 19% lower than their recorded highs at the end of 2006.

This interactive chart allows you to check data based on a number of parameters:

1. Rise in property value according to region
2. The difference in value between the time period before the recession and current prices. This tool can indicate the expected rise in property value based on region.
3. Accurate difference in real estate prices between any dates of your choosing.

 Investing in the United States real estate market may be worthwhile for the following reasons:

1. High Continuous Yield: Return on investment can get to 7%-10% annually
2. Property  price appreciation :By taking advantage of the low prices following the economic crisis, your assets can appreciate drastically
3. Relatively cheap buy-in: Foreclosed houses require relatively less capital investment
4. Higher Demand: Growing interest among local and foreign investors have begun to drive prices upwards
5. The overall economic recovery has begun to affect real estate prices positively.

Many of our customers have taken advantage of this historic opportunity and after careful and calculated planning, have reported high yields from investing in the U.S. real estate market. These gains greatly outweigh the possible gains in the Israeli real estate market, which reports an average annual Return on investment of 2%-3%.

 What does one need to be careful of?

As always, investment carries with it a certain amount of risk. Before investing in the U.S. real estate market, it is advisable to investigate all relevant factors and/or look into the possibility of investing through an outside company.

Some of the Risks Include:

1. Since the economic recovery has already begun, real estate prices have already risen. Therefore, there are some properties that are less worthwhile investments than others.
2. Unexpected costs associated with home ownership including costs associated with renovations, replacing or fixing parts, and/or expelling unlawful residents of a property.
3. Troublesome renters: The justice system in the U.S. heavily favors a resident renter over the property owner. Therefore, troublesome renters can bring about an unwanted economic burden.
4. Inability to rent out the property: Property in less popular areas will naturally be less in demand. This issue can be compounded if there are a lot of available properties to rent in that specific area.
5. Physical/Geographic Distance: The inability of a property owner to check up on his assets and other related parameters can be troublesome. Additionally, physical distance is a mental hurdle that many are uncomfortable with.
6. Unfamiliarity with the local market: There are vast differences between the real estate market in Israel and the U.S. Many Israelis lack the understanding, knowledge and experience to weigh the advantages and disadvantages of buying property in the U.S.
7. Companies that sell “garbage” to their clients: Unfortunately, many companies taken advantage of the typical Israeli’s unfamiliarity with the U.S. real estate market and have sold property to Israelis in the last few years at exaggerated prices.

The good news is that most of the risks described above can be easily taken care of by thoroughly examining the relevant parameters before entering the real estate market. In order to facilitate this process for our clients, we have attached a number of useful suggestions for those thinking of buying property in the U.S.

 Looking Forward

The National Association of Realtors has predicted that property values will continue to rise 5% – 6% annually for the years 2014 and 2015. Other professional bodies in the field, including Zillow and Pulsenomics have projected similar property value appreciation over the next few years.

 Sensibility of Real Estate Investment from a Tax Perspective

The tax implications of investing in the U.S. real estate market are particularly complex. We at Virtuetax have vast experience navigating this multifaceted challenge for our clients. Proper tax planning prior to investing can greatly affect the worthiness of an investment.

Our tax goals are as follows: To ensure that our clients receive maximal protection when buying real estate and concurrently to prepare a proper and effective tax plan that will lead to the greatest monetary gain.

The above material should not be viewed as advocating any particular activities and/or tax advice and/or advice of any kind. The information presented above is for solely for informative purposes and is not a substitute for a proper financial consultation. Any individual that chooses to make use of the information above does so at his own discretion and responsibility. Do not copy or redistribute the material above for any purpose without advance written permission from Virtue Tax.