The view from the US : Housing Fades as a Means to Build Wealth

Is this really bad news for property owners and investors......?

The property market in the US is still in a dreadful state. Sales figures for last month are expected to show a 20% drop since last year. According to some experts cited in a NY Times article investors should stop expecting property to be the vehicle for creating wealth that it was in the years up to 2007.

The Center for Economic and Policy Research estimates that the $6 trillion in property values lost since 2005 will take 20 years to recover, and that's without taking into account inflation. You can see the NY Times article here.

Surely this is bad news? Well, for speculators and those that wish a return to the dramatic growth in property prices in the decade up to 2007 the answer is yes.

There is another perspective however....

Professional investors (in any market) will take into account a variety of factors. These include the risks & returns compared to other forms of investment, and the performance of different market sectors and specific investments.

Applied to the property market this means paying attention to the fundamental economic indicators in a region. In the UK there seems to be a reasonable level of optimism about the general economy whilst in the US there are real fears of a double dip. Availability of land is also rather different. New land is not being made anymore, other than by oil rich Sheikhs, but the US does not suffer the level of overcrowding we endure in our small island. UK immigration has reduced, but is in no way reversing. And many property developers (including yours truly) have dramatically reduced their output - or stopped altogether. This does nothing to help the underlying housing shortage.

Another factor that needs attention is that of location. In the same street one property can increase in value at the same time as another drops. When all prices were going up, amateur investors didn't worry too much about these things. Buy it! Overspend on doing it up! And still turn a profit! Great TV, but I'm not sorry those days are over.

Any investment requires due diligence and the laziness induced by boom times has done us a disservice. But despite the challenges, I continue to see property as a solid investment strategy - BUT - it needs to be approached professionally.