A new survey this week has cast a very interesting light on the investment strategies of the US public. The survey by Bankrate.com suggest that 27% of the 1000 investors questioned believe that real estate was the best home for their investment funds which they did not require for at least a decade. While there is no doubt that real estate investment should always be viewed as a long-term investment, this is the first time in three years that real estate has come top of this particular survey.
So, what can be gleaned from the survey and are we moving towards a situation where some US investors are beginning to see real estate as easy money?
The survey results show that 27% of those questioned put real estate as their preferred choice of investment, 23% would prefer to stick with cash, while 17% see the stock market as the best long-term investment with just 5% mentioning long-term money bonds as their preferred choice of investment asset. Over the last three years cash has been king in more ways than one across the US, and indeed across the world, so this move towards real estate has obviously grabbed the attention of many experts and investors.
Is this stance justified?
While the 2008 real estate crash is still fresh in the minds of many people it seems that some investors are looking further ahead and trying to put this savage period behind them. We only need to look at historically low US base rates to see that cash savings will bring a minimum return in the short to medium term. In some ways it is a surprise to see cash as the number two choice (having been the number one choice for three years) but then again this is maybe a flight to a “safe haven”.
When you bear in mind that not all US real estate markets have recovered there are some fairly impressive rental yields available which put minimal savings rates very much in the shadows. It may take a little longer to release any capital gains from some areas of the US real estate market but if rental yields are greater than inflation then in real terms your assets are growing in value. So, it may well be that low mortgage rates and low US base rates will support this move towards US real estate in the short to medium term.
Are investors finally looking to the long-term?
One criticism of many investors in years gone by has been their short-term investment strategies which can go very wrong. So, with base rates at their current level perhaps it is only sensible that the majority of US investors questioned are looking at long-term real estate investment. As we touched on above, current rental yields create an income which allows your overall asset value to hold its own in the real world while hopefully waiting for long-term capital growth.
Rather than criticising investors who are moving towards US real estate perhaps we should acknowledge the fact that there may be value in the longer term and short termism would seem to have disappeared for the foreseeable future?