For people that purchased property in the USA between 2003-2007 it´s been a pretty disastrous 3 years. Don´t think anybody will disagree with that.

What about the people that bought in 1980 or 1990 or 2000? As the chart below illustrates, they are looking just fine. The red line is property prices adjusted for inflation every year and the blue line is average property prices in each of those years.

What about the people purchasing today at the 2001 prices? Where will they be in 10, 20 or 30 years?

Buying at historical lows means the rental yields will be high and once financing becomes available the supply of buyers (and property prices) will increase dramatically. If you purchase in 2010 at 2001 prices and sell in 2015 at 2005 prices, you´ve more than doubled your money.

However, the longer term view will depend a lot on interest rates and inflation too.

Unlike the Greeks, the US government can inflate its way out of trouble. Whatever your opinion is of the US debt (53% of GDP by the way), it´s ability to borrow is greater than any other country on the planet thanks to the unique status of the dollar.

Borrowing levels will have to stabilise though, and although there are lots of ways of doing that (some painful, others problematic) inflation is going to be a side effect.

If inflation does take hold in the US, that means interest rates will go up, which means higher mortgage payments for people. That´s not good if you have a mortgage.

Historically, that has also lead to higher rents.

It has also led to higher property prices.

So where will that leave the proud owners of distressed Florida properties with no mortgages in solid locations with steady renters?

Laughing probably, all the way to the bank.

Kind Regards

Colin Murphy

Tags: Add new tag, distressed property, House price statistics, Housing prices, Inflation, Interest rates, Torcana
Posted in USA Property |