How will the U.S. Elections affect the Housing Market?

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The U.S. is slowly edging towards the Presidential elections and with less than 3 months out, it seems the management of the economy will be a major issue for voters. This appears to be one of the more ‘volatile’ election campaigns we have seen in a long time in the U.S.

Both sides seem to be pushing heavy into the economic agendas, but the outcome, or headwinds investors may see are very different with each party.

Technically I don’t have a horse in this race, so we can look on the elections from a relatively ‘unbiased’ view.  Generally, for us as foreign investors, it is more around the impact on the housing market that the policies of the elected party have that is of more interest, but we also need to keep an eye on the reactions to the election as consumer sentiment can also affect markets.

In this election though, housing seems to have become a more ‘prominent’ issue due to higher mortgage rates, low inventory levels, and housing shortages in several states, all making for (in U.S. terms) a very expensive market (median house prices in the U.S. are still at record highs – US$495,100 for end of 2023 according to the Census Bureau and Dept of Housing & Urban Development).

Firstly, both parties have claimed to want to impact the housing shortage/cost of housing.  Kamala Harris and the democrats have said they will provide a US$25,000 down payment (deposit) assistance for first time buyers.  Now I can assume this will work similar to government first home buyer schemes we have had in Australia over the years.  Strangely enough though, just like here in Oz, when the prices are high due to under supply of properties, making it easier to buy properties, does not in fact fix the problem, but makes it worse…

Further her plan includes: creation of 3 million new housing units within the next 4 years, tax credits for developers who build starter homes/units (assuming this is more aimed at lower cost homes) and a US$40 mil fund to tackle the ‘housing crisis’.  To me this is all just words, and we have heard this and similar promises here from our government and it almost always leads to naught…

Trump and the republicans, on the other hand, have not directly tackled housing, but policies are more aimed at tax cuts, particularly for businesses, increased tariffs for imported goods, and looking to reverse a few of the green energy subsidies and mandates that the Biden administration championed.  Further comments/promises include reducing inflation and lowering interest rates.

This is interesting from two points.

Firstly, Trump’s policies, from a high-level overview could be regarding as inflationary. His claims of reducing taxes and increasing tariffs could certainly lift prices, causing inflation, so it would be interesting to see if his administration would monitor this closely.

Secondly, technically the president does NOT have any sway with the Federal Reserve Bank who sets the interest rates, and he is certainly not a fan of current chair Jerome Powell, the presidents do put forth candidates for the chair of the Fed and there was even talk that Trump could look to replace Powell as early as 2026, but this has dialled back some now, and with Powell’s stint up in 2028, Trump has said he would let Powell serve our his term, but then could nominate someone more willing to listen. This is also a little ironic as Powell was Trumps nominated candidate previously.  All in all, he would have little ability to control interest rates, other than ensuring the economy was healthy.

Then there is the claim from Trump that if elected he will attempt to ease economic pressure by devaluing the U.S. dollar…

Now, whether that is even possible is up for debate but there is no doubt that some of his policies could put pressure on the USD.

We spoke above about the powers the oval office has on the Federal reserve and lowering interest rates can generally lead to a weaker USD, but this would be difficult, particularly if Trump was looking to go against monetary policy to do this.  In his favour, it appears that rate cuts are on the horizon anyway, so he may just applaud this and roll with it, so to speak.

Alternatively, increases in oil mining and removal of bans on gas exports, as he has suggested he will do, could also put some pressure on the currency. As a climate change sceptic, Trump has promised to open more oil fields in the Gulf of Mexico and lift the moratorium on drilling in the Alaskan Artic.

Generally, energy prices can have a significant impact on consumer sentiment and can be considered inflationary.  Lower energy and fuel prices can help reduce costs of living and therefore inflation, which may then lead to the Fed looking to cut rates, and therefore, possibly drive the USD a little lower.  It’s a long shot, but if used in conjunction with other levers, could have some minor effect.

Threats of tariffs and/or trade negotiations could also be used, and Trump believes he can use the threat of tariffs to force other nations to make concessions with their currencies.

Trump was quoted by Businessweek in saying “Man, is it good for negotiation. I’ve had countries that were potentially extremely hostile coming to me and say, ‘Sir, please stop with the tariffs. Stop.’ They would do anything,”.

He said the threat of tariffs was effective against Japan and China and can point to some success with this tactic. During Trump’s time in office, the dollar declined 5.5% against the yuan.

Now, whether he can influence the USD is yet to be seen.  He can certainly point to the decline of the USD against the Yuan from his first term as evidence he can “get the job done” but most of his other polices are seen to be more inflationary.  Tax cuts, more government spending, and tariffs on imports are all likely to add to inflation, and subsequently interest rates and therefore more likely to inflate the value of the dollar rather than reducing it.

Overall, there is little in policy for either party that is going to have a massive impact on the housing market over the next 4 years.  If the first home buyers grant, by any other name, is implemented, this could put additional pressure on an already lower inventory market, and give some fuel to a hotter residential market, combined with the likelihood of lower interest rates over the next 18 months.  These are the main two points I will be watching closely.

In terms of currencies, a country’s currency will rise and fall with the strength of its economy in general, relative to its peers so if either party’s goal is to strengthen the economy it will be difficult to devalue the dollar relative to other currencies.

While political unrest can certainly quieten markets down, this generally does not last long.  For us here as foreign investors, it is ‘steady as she goes’ with looming rate cuts expected to buoy a relatively stagnant market, but strong market growth is NOT a strategy we deploy for the U.S. market whose strengths in cashflow and the ability to generate manufactured growth far outweigh any market growth strategies that we cannot control.  We have one of the best growth markets right here in Australia, but for cashflow and manufactured growth strategies, the U.S. is extremely strong and looks to remain that way for time to come.

If your keen to look at implementing cashflow strategies in the U.S. give us a call, we would love to assist.

Click HERE to Chat to us

How Does a Home Inspection Work?

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The inspection phase of a home will vary from county to county, state to state in the US, but in general, all inspections will involve evaluating certain aspects of the home before a seller can sell their home to a prospective buyer.

Health and safety are the most important considerations. Basic amenities expected of a modern building should also be in place and functioning properly

Inspections can be crucial to help arrive at a final sale price as well. This process should be used when you are looking to buy a rental property to see If there are any serious issues, and can then determine if the seller needs to fix them before the sale can go ahead. In some cases, you might agree to make the repairs, but would also expect to get the house for a lower price in consideration for the work and money you will be putting in. This process then can also occur if you are looking to sell a property as well, on the other side of the fence. Often though, as the property you are likely selling has been fully renovated, there usually will be less issues.

The usual areas of inspection are:

  • Structure
  • Exterior
  • Roofing system
  • Plumbing system
  • Electrical system
  • Heating system
  • Air conditioning system
  • Interior
  • Insulation
  • Ventilation
  • Fireplaces
    They will also look for problems like radon gas, carbon monoxide, asbestos, termites and more.

Inspection Standards
The American Society of Home Inspectors, ASHI, has “Standards of Practice” which stipulate what must be inspected, and how far home inspectors need to go to report those findings. Sellers who want to get a clear idea of the state of their home and what needs to be attended to urgently can hire their own inspector, who will then give them an evaluation of all that needs to be done. Inspections usually take 2 to 3 hours depending on the size of the house.

Hiring an inspector will cost money, but it can also prevent your sale from falling through further down the road because “deal breakers” have been discovered. I would also certainly recommend when purchase a property you do not intend to renovate

Buyer Inspections when Selling your house
Once a buyer makes an offer on your home, they will come with an inspector to assess the property. This is bound to make most sellers nervous, but if you’re worried, you can book yourself an inspection using your inspector beforehand and ensure you give yourself some time to get the urgent issues sorted in time. This can be a clever strategy to ensure the inspection does not pose issues for you, but again, if the property has been fully renovated, you shouldn’t have too many issues. The prospective buyer may also walk through with the inspector if the buyer is in town.

The Report
When the home inspection is complete, the inspector will write a report and give a copy to the prospective buyer detailing everything that has been found. If there are major causes for concern, they will usually require immediate attention before the sale can go through. They might also report on potential future issues, such as the boiler or furnace or roof, only having another three years under warranty. You probably won’t be required to buy a new boiler etc, but you may have to lower the price of the house.
Remember, the inspector’s generally will always find issues, even with a complete renovated property. I do feel that it is to justify the cost of their inspection with the buyer, but if the items are minor, it does get you a good indication that the property is in good condition

You will have time to fix the issues, and there will be a follow-up inspection. Once all the parties are satisfied that the house is in good condition or agreed price has bee reached, the sale can proceed.

How to Educate Yourself to Flip Houses Successfully

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House flipping is something to get into that has the potential to create a lot of money for you. But there are some things that you have to know going into it. Anyone who’s successfully flipped houses will tell you that you are going to have to have the money to buy the property.

This is something that makes most people pause and think that they don’t have the kind of money up front that it takes to buy a property. You don’t have to use your own money.

You can get the money from lenders and these can be family members, friends, real estate investors and other money lending businesses. You can find some lenders through investment groups.

Just watch the interest rate. If you have good credit and your debt ratio is low, you can take out a loan against property you have, or a line of credit. Some people get creative with their financing for a flip house.

They use a little of theirs, some from family and some from a loan. Some people create a joint venture and split the financing costs. When it comes to deciding the financing amount, always plan on spending more than you think you might need because there are always glitches.

You need to understand how real estate works. You can educate yourself about this by having a mentor in the real estate business or by taking classes in it. But you must know how buying and selling works, how to determine which location is good to buy a flip house in, and what the market is doing.

You need a good figure on what the house will be worth on the market once everything’s said and done. Look for foreclosed homes, homes that look rough but are basically in good shape and homes in sought after locations.

You also need to know how to work on a house. It’s okay to hire those who know what they’re doing when it comes to working on a house, but you need to know what should be done and what a good job looks like on a repair or renovation.

Because otherwise, you won’t understand what has to be done or if it’s being done correctly and up to code. You can have a contractor come out and look at the flip house to tell you what’s going to be involved in fixing it up.

This will help give you a ballpark figure of what you’re going to spend to get the house ready. Just keep in mind that renovation estimates are just estimates. As the work progresses, problems are usually uncovered – so give yourself not only a financial buffer, but a time buffer for getting the project done as well.

When the home is done, make sure it has market appeal by staging the home. There are certain people you’re going to need to be successful with house flipping.

You need someone who’s knowledgeable about the market if you’re not. You need someone to handle the paperwork when you sell the house. You need someone to handle the financial side who can keep the project within budget and moving along.

You need people who are skilled in all areas of home flipping. That includes people who can work on bringing the yard up to a condition that’s appealing to buyers.

You need someone who can put in a floor or renovate a kitchen. You need electricians, plumbers, heating and air experts and any other skilled person to handle areas outside of your expertise.

Understand that time and problems equal a demand for more money. The longer it takes to complete and the more problematic a flip, the more it eats into your profits.

Hit us up if you want any more information on any of these areas!

Is Flipping Right for You?

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A handful of shows on TV have featured house flipping as a way of life. They show the ups and downs of getting into the business. It looks like fun and you might be wondering if it’s something that you should get involved with.

You can decide if that’s the case by taking inventory or your personality and what you have to put into it. Flipping houses is going to be a pretty serious time commitment.

Though it looks quick on TV, reality is different. You need to be someone who has the amount of time that it’s going to take to dedicate to a project. If you’re stretched too thin right now, then you need to wait until you have the time or have someone Do it For you (like us!).

You’re going to have to hire someone to help you. To get involved with house flipping you need to have a team that you can work with. You may have an electrician, a plumber and several other people who can professionally do whatever task is needed. A general contractor can handle a lot of this for you

You must to look at the cost involved. You need to be able to know how to find a good home to invest in. A good flip home should be priced low enough so that after you repair what needs to be fixed, you have a tidy profit.

That means you can’t pay market value for a home. You will need to find the “fixer uppers” that don’t have serious issues in established or even high end neighborhoods that you can afford i, buy, bring the condition up and then sell.

You do have to be able to buy that house, which means you must have some sort of financing ready. This is a step that should be decided before you even look at homes to buy.

To decide if house flipping is right for you, you want to examine your reasons for going into it. If it’s because you think it’s something that’ll make you rich fast, then that’s a wrong reason. This is certainly a good way to make money, but takes time and effort for sure…

You can make a lot of money flipping houses, but it’s not something that you can rush. It’s something that builds your income house flip after house flip. Your first flip or two is to get you started.

There will always be risk involved in real estate properties just like in any other venture, but the rewards you stand to reap can be substantial. If you have some money already on hand that you can invest in buying a flip house, you’re a hard worker and you don’t give up easily when faced with challenges, then home flipping is probably right for you.

Give us a call, or hit us up on Facebook to discuss your options

Is Investing in Rentals still good in a softening market?

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The current state of the market both in Australia and the US is always a big talking point when I meet and chat to investors. Just this week, we held a workshop in Brisbane (great to have met a lot of you!) and I was asked if investing in rentals was still a good strategy if the market is starting to soften.

My personal opinion is “Absolutely!” From what I have found over the years is that in a softening market we have a number of factors at play. Firstly home owners can sometimes get nervous, particularly if the softening is also being accompanied with rising interest rates (which is what is happening in the larger markets in the US). These homeowners can then sometimes sell, and rent for a while, waiting for the market to improve and didn’t want to get stuck with a home that the value had dropped and/or couldn’t afford (the GFC has made many Americans very gun shy on owning homes). This puts more people in the rental market often increasing the demand and therefore, rents.

Second factor is that as some of the areas soften, the cost to get into rentals can get cheaper, more affordable as well, and with rents rising, this gives even more increased ROI on your investments!

Here is an article written recently by Abhi Golhar from Forbes Real Estate Council on this exact topic…Enjoy!

https://www.forbes.com/sites/forbesrealestatecouncil/2019/02/20/rental-real-estate-is-a-sound-investment-for-any-market/#60b7a5c72c26

For any more information on this or if you have any other areas you would like me to cover in these newsletters, feel free to book a call with me to chat!