The US housing market is facing supply issues as investors and buyers have less options when it comes to purchasing property.
In the US, the number of homes for sale is dropping, leaving homebuyers and property investors with less choice. During July, active listings declined annually by 6.4%, according to statistics released by Realtor.com. This is happening after four months of slowing inventory growth and demonstrates the supply issues being seen across the US housing market.
Buyers and investors have significantly fewer for-sale options with active inventory 49.2% below the typical pre-pandemic levels for the month of July. On a typical day in July, there were 45,000 fewer homes available to purchase. The ongoing lack of properties available for sale is also continuing to prop up prices, while there are already ongoing affordability issues.
Affordability in the US housing market
Just like in the UK, mortgage rates have been increasing in the US, which has had an impact on the US housing market. This is due to the Federal Reserve attempting to curb inflation by raising interest rates, and the Bank of England has increased its base rate with the same aim.
Recently, the Federal Reserve raised its benchmark interest rate by 0.25% to where it now sits at the range of 5.25% to 5.50%, which is the highest level in 22 years. This has been cutting into investors and buyers’ budgets and has impacted purchasing power across the board.
The combination of steep monthly mortgage payments and historically low housing supply has pushed many would-be homebuyers out of the market. During the week ending 18 August, homebuying applications dropped to their lowest level in nearly 30 years, according to Redfin.
The real estate brokerage’s Homebuyer Demand Index measures requests for home tours and other buying services, revealing this was down 7% year-on-year to its lowest level since March. The limited inventory in the US housing market is also pushing prices up, further hitting affordability.
How this impacts US investors
Additional data from Redfin showed that the total number of properties for sale has dropped 18% year-on-year, which is the most substantial fall since the beginning of 2022. New listings are also down 16% as more homeowners are staying put to hold onto their lower mortgage rates.
This means there is less supply in the US housing market, making it more difficult for property investors to find their next investment domestically. And they may have to compete with more people to secure a property, which can push prices up and even lead to bidding wars.
As affordability has been impacted so much in the past year, it may become more and more enticing for US investors to purchase property overseas, particularly in countries where there is a favourable exchange rate.
Diversification opportunities in the UK
Currently, US property investors can essentially secure a discount on purchases in the UK compared to when the pound was previously performing more strongly. It can mean up to double digit discounts, which will maximise an investor’s returns compared to buying in the US housing market.
Because of this, more investors in the US may start looking further afield for their next property investment. The UK property market continues to prove itself as a successful global investment location, and in recent years, US buyers have become one of the most prominent overseas buyers in the UK.
It has long-term appeal and provides an option for investors to effectively diversify their portfolio abroad. But some US investors also have a particular link or motivation to invest in UK property, such as due to business, education or lifestyle reasons, so it’s not always just about attempting to make a profit outside of their home country.
With many years of experience in working with overseas investors, BuyAssociation is a UK-based property investment consultancy specialising in helping investors find their next investment opportunity in the UK. For more information, get in touch with our team.
