What does shrinking returns mean for US property investors?

US property investors are losing money on roughly one in seven homes they sell in the US. Will this lead to more investors seeking out overseas investment opportunities?

A new report from Redfin analysed county records and multiple listing service data across 40 of the most populous metropolitan areas in the US. The research revealed that 13.5%, or one in seven, homes in the US sold by a property investor in March was sold for less than the investor bought it for.

This figure is comparable to the rate of 14.5% from February, which was the highest rate since 2016 and nearly triple the share of a year earlier. While the majority of US investors still reaped gains, those gains have shrunk on average across the board.

And it’s important to keep in mind that gains don’t automatically equate to profits either. Most US property investors likely had some costs that ate into the gains, particularly as costs have been on the rise.

At the same time, investors who rent their properties out are seeing their returns shrink in some locations as well. The median asking rent in the US fell 0.4% year-on-year in March, which is the first annual drop in three years. On top of that, 13 major metro areas recorded larger declines.

Additionally, in the US housing market, investor activity has fallen substantially from the heights seen during the pandemic. Redfin recently reported that investor purchases declined by a record 46% year-on-year in the fourth quarter of last year. Recent increases to mortgage rates and shrinking returns could be putting some investors off from investing further in the US right now.

The importance of location and investing for the long-term

Redfin agents said that small, individual US property investors are predominately the ones offloading their properties at the moment, while many large investment companies are waiting for the market to improve.

For any property investor, thinking about the long-term is key as there will always be fluctuations in any property market, including areas such as house prices. And it’s important to find places to invest in that are more likely to reap the rewards of capital gains and rental returns over time.

Location choice can make a vast difference to your overall return on investment, in addition to your experience in the market. And holding on to an investment for a longer time can allow you to ride out any short-term market turbulence.

The overseas opportunities for US property investors

With returns shrinking for US property investors selling domestically, could the prospects look more positive in international property markets? For those seeking stability and value outside of the US housing space, UK property is an attractive option.

US property investors have been among the foreign buyers that have favoured the UK as one of the most promising property investment locations across the globe. And this trend has been boosted recently by the current favourable dollar-to-pound exchange rate, allowing investors to maximise their budgets and pushing them to act quickly.

And when it comes to long-term investments, UK property has proven to be resilient, despite the economic and political turbulence of recent years. The private rented sector is also home to a fifth of the country’s population, ensuring high tenant demand and strong yields, particularly in certain hotspots across the country.

There are many different areas of the UK that are expected to see growth in the coming years and locations that could provide exciting investment opportunities that allow US property investors to diversify their property portfolio.

BuyAssociation is a UK-based property investment consultancy specialising in helping investors find their next opportunity in the UK property market, with many years of experience in dealing with overseas investors. Get in touch for more information.

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