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Why it’s time to invest in the US

Buyers of holiday and retirement homes have long been able to get more bang for their buck in the US because of lower house prices and favourable exchange rates.

Now they may hope for capital gains in future as house prices and mortgage demand show the first signs of recovery. One swallow does not make a summer, but America’s massive housing market led the way into the global credit crisis and some experts claim it will be first to get back to business as normal.

Rising mortgage demand helped JP Morgan Chase & Co report record profits in the third quarter of this year, with revenues 34pc higher at $5.7  billion.

Jamie Dimon, chief executive of the giant American bank, told analysts: “Importantly, we believe the housing market has turned the corner.”

Whether that can be sustained or proves premature remains to be seen, but the sterling has certainly strengthened against the dollar recently, which is good news for British buyers currently looking to enter the American property market.

David Kerns, head of private clients at foreign exchange specialists Moneycorp, calculates that buying a $150,000 property in May this year would have cost British buyers £98,230, when £1 bought $1.527.

He adds: “By last month, the price in pounds for the same $150,000 property had fallen to just £92,024 – or a mammoth saving of £6,206 – when the exchange rate was $1.63. Even at the current rate, British buyers save £2,100.

“The time to buy in the United States is now. Recent house price increases have been modest but consistent, and the pound’s relative strength makes US property a mouthwatering prospect.”

Against all that, house prices and desirability vary widely by location, and buyers should carefully consider what they intend to do with a second property or retirement home.

Savills’ representative, Albert Horrigan of RSVP Real Estate in Lakewood Ranch, Florida, explains: “Not unlike the United Kingdom, all real estate is local so, for example, the Orlando and the Sarasota markets perform differently.”

Sometimes referred to as the theme park capital of the United States, and home to Disney World, the Orlando area might be a decent place in which to buy a holiday property to let, but not necessarily a second or retirement home, suggests Horrigan. “There is little else to do but visit the parks,” he says.

More positively, though, Horrigan adds that house prices in Florida fell by 50pc from their peak five years ago and that some properties can be picked up for little more than they fetched 20 years ago. No wonder American property is beginning to attract interest from British buy-to-let investors.

Matt Hutchinson, communication director of SpareRoom.co.uk, which trades on both sides of the Atlantic, says: “New York’s rental market is thriving and British buy-to-let investors can capitalise on rising rents and a level of demand for rooms that shows no sign of abating.

“One double room in a four-bedroom house in Brooklyn will rent for £692 per month which means the landlord could make £2,768 a month for the property.”

To put that income in context, the average price for those properties – according to 123 listings on StreetEasy.com – is just under £448,184. That gives a rental yield of nearly 7.5pc before any voids or expenses are taken into account.

Further evidence that American real estate is cheap by international standards comes from HSBC, which found that British buyers’ money currently goes furthest in Orlando. The bank discovered that £125,000 can purchase a four-bedroom home with a large garden and a private pool in Orange County, Orlando, compared to just a studio apartment in the Swiss Alps.

The same amount would buy a three-bedroom house in Alicante on the Costa Blanca, Spain, or Bodrum, Turkey. A two-bedroom apartment in Malaga, Costa del Sol, Spain, or in Pisa, Tuscany, Italy, according to HSBC.

James Yerkess, head of foreign exchange at HSBC, says: “The USA offers excellent purchase power right now. There is a huge discrepancy in the size of property that UK buyers can purchase on the same budget in some of the most popular overseas locations for holiday homes. This is a combined result of house prices, foreign exchange rates and tax levels.”

That raises the important point that property taxes do not end at Dover – and are due to rise in the United States at the end of this year.

Jonathan Miller, Knight Frank’s market expert in New York and president and CEO of Miller Samuel Incorporated, explains: “We are already seeing an uptick in high-end home purchases in the US as many hedge their bets that tax cuts initiated by the previous administration on federal capital gains tax will not be extended at the end of the year. The tax is due to rise from 15pc to 20pc, so we anticipate a rush to close deals before December 31.”

While we should always be wary of real estate agents urging buyers to hurry while stocks last, raising the tax rate by a third would make a dent in many homebuyers’ plans. The outcome of next month’s presidential election provides another imponderable hanging over the American property market and exchange rates. But current prices leave plenty of scope for surprise on the upside.

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