Existing clients can use these links to log in to the Infinity dashboard. Not a client? Why not get in touch to find out about our services.
In 2007, the US market came to the end of a decade-long housing boom which had been characterised by low interest rates and excess liquidity.
The rate of home sales began to jump drastically in 2005. Ninja loans (‘No Income, No Job, (and) No Asset’) became common and poor lending practices allowed these loans to be approved without proper verification. As a result the mortgage market grew sharply from 65% of GDP in 1998 to 106% of GDP in 20071. Many of these loans were available to people with low introduction rates for the first two years which then dramatically leapt up after the short honeymoon period. As such, in 2007 when a large proportion of these increases began to take effect many were unable to fulfil their now substantial monthly payments. Most assumed that they could refinance on their mortgage since housing prices had previously been going up so fast—the US had been the grateful recipient of 40% growth in the housing market between 2000-2006—but by the end of 2006 home prices had stalled and many people found themselves unable to refinance. As property prices fell further, sub-prime mortgages increasingly reset or foreclosed worsening the situation for the property market and the general economy.
In Q2 2008, there were approximately 739,714 properties with foreclosure warnings in the US, up 121.4% from a year earlier. Due to the nature of how these loans had been packaged, compounded with the collapse of two Bear Stearns hedge funds forced a ripple effect on financial markets around the globe. Like dominoes financial institutions fell with September 2008 seeing the demise of Lehman Brothers, the largest bankruptcy in history, the fire-sale of Merrill Lynch to the Bank of America and the near collapse of AIG, rescued by the US government.
As a result of the downturn, credit terms are becoming stricter and cash flow is tighter and tighter for the individual. Prior to all of this, the boom years of the last decade changed the spending habits of the American people, moving towards spending rather than saving. Between 1950-1985 consumers saved 9% of their disposable income, earlier this year it was zero. People took comfort in the belief that the economy would continue to grow. Easy access to credit led to consumers spending the next month’s salary on luxuries they couldn’t otherwise afford. Easy credit and years of growth reshaped the population’s spending habits and helped expand the economy further, however the consequences of overspending are now becoming apparent.
During most of 2007 and 2008 the dollar continued to depreciate due to various outside influences dating back to before the sub-prime crisis, but as the recession persisted more and more people took the flight to safety and pulled their investments out of stocks, shares and property to keep their savings in cash, the obvious choice being the world’s reserve currency, the US dollar. As more and more dollars have been taken out of the free flowing market the value has appreciated due to the higher demand and short supply. The appreciated dollar has inversely affected exports making them more expensive for other countries not pegged to the dollar. This has resulted in reduced demand which will negatively impact the economy. To try and expand investment and boost the economy interest rates were slashed from 4.75% in January 2008 to 1.5% in October 2008; it is thought further cuts of 50 or 25 basis points are still possible this year.2
In addition, in acknowledgement of the severity of the US crisis, the government has initiated several actions to stimulate the economy and housing markets. These include the Economic Stimulus Act, the Housing & Economic Recovery Act and the US Treasury Secretary Paulson’s USD 700 billion fund, known as the Emergency Economic Stabilisation Act, the fund will be used to buy mortgage backed securities and other distressed debt from financial institutions placing more liquidity in the market place. These acts combined provide tax rebates and incentives, allowing homeowners the opportunity to refinance to help stay afloat during the crisis, and most importantly are hoped to restore consumer confidence once more.
The US may have suffered a massive blow across the board, but it remains the largest and most powerful economy in the world. America, as a market is vast and it is difficult to examine it as a whole without appreciating that each state, and even each city, has its own distinct characteristics and in turn property markets. With this in mind, the current situation is one of contrast; whilst some areas are still suffering heavily from the market crash, others look as if it will not be long before they begin to gain their strength back.
In summary, IP believes there are a number of areas in the US that represent excellent investment opportunities in a recovering market. Currently, well known and well established areas such as Las Vegas, Los Angeles and New York present rare, attainable, opportunities to get a toe on the property ladder and are being closely watched by experienced investors. The US also presents possibilities in areas that may not have gained attention before, such as Phoenix and Palm Springs. As always, due diligence and a measured view needs to be taken, however IP Global believes that the US holds many strong prospects in the coming months.
This Site and the Content are not directed at or intended for distribution to any person (or entity) who is a citizen or resident of Hong Kong (or located or established in) any other jurisdiction where the use of the Site would be contrary to applicable law or regulation or would subject Infinity Financial Solutions Limited to any registration or licensing requirement in such jurisdiction.
Persons (or entity) who is a citizen or resident of Hong Kong please click on the link below to access our Hong Kong Site.