At a time when many experts are concerned about the short to medium-term outlook for the US economy, it seems that financial giant Blackstone still believes there is further upside in the US real estate market. Jonathan Gray, global head of real estate at the investment giant, has been talking to CNBC about the immediate outlook for the US property market. He highlighted a number of interesting factors which would seem to allay fears that the US economy is struggling and the property market will very soon start to turn down.
There is no doubt that the US real estate market is being assisted by significant foreign investment with the likes of China, Canada, Norway and the Middle East very prominent. This has been a trend in the US real estate market for many years now and while historically it has sometimes indicated the top of the market, why is it different this time?
Blackstone believes that prospects for the US real estate market in the short to medium term are different to those which normally preceded a collapse. Official figures confirm that the current rate of leverage is nowhere near that seen just prior to the 2008 collapse and therefore this will not really be an issue. There is also a definitive lack of excessive building across America, although there are pockets of new developments emerging, with “over exuberance” also often seen as a precedent to collapse.
It would be wrong to suggest that the US economy has performed as well as many had hoped in light of the 2008 US led worldwide recession. The ride has been bumpy for the US and it is unlikely to be a smooth transition from minimal growth to more “traditional levels” in the short to medium term. Even though the US economy is not expected to set the world alight there are hopes that the medium-term will at least see the emergence of a new growth trend (albeit at a slower rate).
There is no doubt that the US real estate market needs a relatively strong US economy to prosper in the longer term. However, if the authorities can help investors maintain relatively low leverage levels, and keep the number of new developments under control, there should be reason to be hopeful?
Researching your markets
While we talk about the “US property market” as one there is no doubt it is built up of a number of micro property markets which perform very differently at any one moment in time. There are some areas of the US where prices have rallied to exceed those prior to the 2008 crash while others remain in the doldrums. So, any short to medium-term growth in the US real estate market is likely to be selective and research will become an even more important element of your investment decision.
On a more positive note, it is interesting to see that while many experts continue to talk down the US property market this has had relatively little impact……so far.