Despite global turmoil, U.S. real estate remains a solid option for protecting capital from volatility. This is evidenced by the available analytics that the OPISAS team and I present in this article.
The countermeasures taken by various states to deal with the emergency are already having a significant impact on the financial markets. They are more volatile than ever. The time has come to assess the impact of the crisis on the real economy.
To what consequences will the combination of restrictive policies and unstable financial markets on the one hand, and strong support measures for citizens and businesses on the other, lead to in the near future?
It is too early to build global scenarios of the future. But if we look at a specific market sector such as long-term rental housing in the U.S., we can already get reliable indicators. This is made possible by accurate and detailed studies that analyze market behavior during past epidemics and crises in the United States and around the world.
This data shows why residential real estate, which rents to average Americans, can be an effective way to deal with the volatility of global markets. The reason is the stable and continuous yield and the fact that we are talking about real property that you have the keys to.
In certain categories of real estate, up to 80% of residents are renters. The average American will always need a roof over their head. And this trait has made the U.S. rental housing market stable.
Note that the U.S. administration is supporting the real economy with extremely pragmatic measures:
- Direct payments to Americans: $1200 for adults and $500 for children.
- The bill would provide financial assistance to people who reported up to $75,000 on their 2018 or 2019 tax returns. The median household income in the U.S. as of January 2019 was $63,688.
- $850 billion in subsidized loans and assistance to companies.
- Guarantees from the Fed (U.S. Central Bank) for educational loans, car purchases, credit cards.
To predict the future, we must learn from the past. It is impossible to make reliable hypotheses if we want to understand the future of the U.S. real estate market, and as a starting point we take the sub-prime lending crisis of 2008.
Back then it all started with the acronym ARM (Adjustable-Rate Mortgage). Before 2008, mortgages with such rates, even without a down payment, were available to applicants with low or very low credit profiles and with irregular incomes.
This is no longer the case these days. The mass practice of risky mortgages is a thing of the past. In particular, the notorious ARM has been reformatted and now applies on very different terms:
- Restrictions on interest rate increases over time have been introduced.
- The applicant must provide proof of financial solvency even with a possible high interest rate.
- Complete documentation is required.
- Mandatory down payment.
- Mortgages cannot be issued if the credit rating is below 620.