The US real estate market is boiling.

And how does this relate to you?

Price war between buyers for every apartment: Did you think the Israeli real estate market was hot? Look at the United States, one of the most sought-after markets for the Israeli investor.

Review

Yaron Shifoni, guest column

28/03/2022

Monday, March 28, 2022, 9:00 p.m.

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The American real estate agency Redfin chose several years ago to produce a special index that is its own barometer of the state of the American housing market.

It has decided to classify any transaction during which the seller of the house or the broker who represents it receives at least two parallel offers for its purchase.

Such a situation they define as a price war.

The higher the number of homes with at least two offers from potential buyers, the warmer the real estate market is. According to this index, 70% of all homes sold by Redfin's agents were in a state of bidding between two or more buyers. A higher rate compared to 67.1% in December 2021 and only 60% in January 2021. Buyers of private homes in the US are ever more determined to simply buy a home and about finding great deals they no longer talk, simply because the houses and apartments are hijacked and fast.

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Buyers are snatching up and indices are rising.

A multi-family complex in Jacksonville, Florida (Photo: ShutterStock)

Leap in construction starts

At the same time, data on the volume of construction starts of private homes in the US were published. These jumped by 6.8% in February 2022 and recorded an increase of 22% compared to the corresponding year. The corona, all at a time when U.S. government money has made its way to citizens.

The average U.S. home price soared 19 percent in 2021, according to national index S&P Case Schiller, which tracks apartment prices.

Areas like Phoenix, Arizona recorded a 30% jump.

The largest site for locating private homes in the US, Zillow (the "hand 2" of the Americans), predicts a 17% jump in prices in 2022 and a double-digit increase in 2023. Even if we assume that there was a big mistake in estimates, then it seems The least single-digit increase this year and next.In a real extreme scenario, prices will stop completely.

The rise in real estate prices in the US in the last three years (Photo: Yachz)

The Israeli trend: multi-family

One of the trends that stands out most due to the shortage of supply is entrepreneurial construction.

If in the past entrepreneurs were in the world of renovation and improvement, the trend in the last year is to go in the direction of entrepreneurial construction, due to the great shortage of residential apartments and commercial areas in most of the prominent metropolitan areas.

As a result, entrepreneurial risk in construction has dropped significantly.

Therefore, more and more developers are deciding to purchase land designated for construction and promote saturated construction in it.

Even if the rate of price increase slows, and even stops in 2022 or 2023, the return on an entrepreneurial project in the current market situation is still high enough to justify the costs.

The type of entrepreneurial projects known to the Israeli public are multi-family complexes.

While Israeli institutional investors usually choose to purchase complexes when they operate and generate cash flows, setting up complexes and then operating them can yield a more correct return in the current market-risk level.

An increase in mortgage interest rates will reduce the demand for purchase

The rise in mortgage rates that began in early 2022 (following the US Federal Reserve's announcement of rate hikes to reduce inflation) has led to a rise in mortgage rates.

It seems that since inflation in the US has reached an annual rate of 7.9%, a record of 40 years, there will be no escape from further interest rate hikes. These will most likely lead to a further rise in mortgage rates.

Mortgages rise again (Photo: Yachz)

The expected consequence of the move is the increase in funding for the purchase of apartments and the encouragement of buyers to rent apartments instead of purchasing.

One of the consequences of the expectation of an increase in financing is that many anticipate purchase plans, so that homes advertised for sale are purchased very quickly and supply is scarce.

How To Profit From The Boiling US Real Estate Market?

Despite all the forecasts for price increases, it seems that the first rule that investors should stick to is not to build on price increases, at least not in the short term.

The 2008 crisis taught us a lesson in modesty and heralded 4 consecutive years in which prices had fallen.

Therefore, even prolonged periods of price declines came suddenly, without any warning.

One of the first rules is the range of investment.

Today the accepted term for Israelis is 3-4 years, rarely do some people invest in terms of 7-8 years.

Thus the starting point should be a medium-term investment at least that will allow short-term fluctuations to be avoided.

Investing in group entrepreneurial projects is one of the options to profit from the American real estate market, with one of the options being participation in an investment in entrepreneurial construction when in the end the sale or rental of the apartments.

A lower preference is actually for buying private homes.

Purchasing a single family is less true for investors for various reasons that investors have discovered in recent years.

This is a strategy that may have paid off in terms of increase in value, but has been exposed to the volatility of various maintenance costs.

Sometimes various components of housekeeping amounted to a very significant expense that hurt the return.

Thus, Israeli buyers have matured and realized that buying a home in the United States is not the same as buying a home in Israel. The

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