US Home Sales Declining At Steep Rates
A strange thing has been happening in the United States real estate market recently: home sales are plummeting at an all-time low. In February this year, real estate sales dipped to their lowest for six consecutive months since 2008. The most underperforming cities were Bay Area, San Francisco, followed by Oakland and San Jose in California, and New York and Seattle in third and fourth places.
Sales for luxury homes had also been decreasing steeply in other big cities in the United States, such as Hamptons, New York which plunged to nearly 45%. On the other hand, non-luxury home sales have gone down to 38% across all states.
The only US state that has not been affected by this real estate crash is Florida. In fact, real estate has been booming at a fast rate in this southern state, despite the recurring floods and hurricanes. According to the real estate brokerage firm Redfin, home sales in Miami, Florida had increased by up to 20% per year, especially after the recent changes bought about by political instability and the global pandemic.
Why US Real Estate Sales Are Plunging
The top three factors contributing to the decreasing sales of US real estate are the work structure shifts impacting the tech industry in major cities, increased mortgage rates, and ballooning tax rates across the country.
It is worth noting that the cities which had the lowest home sales are considered ‘tech hubs’ where big tech industry companies, such as Google (California) and Microsoft (Seattle) are located.
The global pandemic paved the way for more flexible work settings, such as remote work, which allowed many individuals who worked in information technology (IT) professions to relocate to areas with cheaper costs of living. Furthermore, the layoffs which happened during the pandemic lockdowns caused a massive exodus of workers who had no choice but to move somewhere else to find new jobs and minimize the costs caused by their job termination.
Increasing mortgage rates are another reason why people are hesitant to buy a home in the United States. The interest rate for an average 30-year fixed-rate mortgage contract has increased up to 6% this year, a double increase from the average mortgage interest in decades.
The third factor for declining real estate sales in the United States is burgeoning tax rates, from income tax to real estate taxes. The Biden-Harris administration has increased overall tax rates up to 7% to offset the high inflation rate caused by the pandemic.
How to Avoid (or Survive) the US Real Estate Crisis
The US real estate crisis is just one of the manifestations of an increasingly broken administrative system that would prove costly to anyone who wants to invest or live in the United States. This crisis has caused massive flocks of people to move out not just to the less taxed US states, but to moving abroad completely. This phenomenon is best captured in the ‘Dubai Migration’.
The Dubai Migration
Wealthy, valuable, high-net-worth individuals are moving to places like Dubai, United Arab Emirates due to the ease of visa application and a liberalized visa process, in contrast to the increasingly restrictive visa policies in the United States.
Dubai’s lax tax policies are also what attracts these individuals to purchase real estate in Dubai. Despite being a highly religious and theocratic country, Dubai surprisingly has a very liberal, capitalist free market economy that makes it easy for any investor to open a business there. Their laissez-faire business policies are what drive up real estate sales in Dubai that no one ever imagined decades ago in this desert land. Dubai is a great example of how strategic economic planning and minimal government red tape can transform any landscape into a bustling metropolis.
Of course, not everyone is going to or can afford or even want to go live in Dubai. However, any financially wise individual should carefully consider the pros and cons of buying real estate in the United States, given all the looming crises going on that might take a long time to recover.
Moving abroad in general may be a good option for anyone who wants to avoid dealing with the real estate crisis in the United States and to find better deals abroad. If you have the resources, you can talk to our consultants at The Cutten Group Tokyo Japan to help you in the process of purchasing real estate abroad.
However, moving abroad may not be an option for you. If so, then the best strategy you can do is to look for good real estate deals within the United States, preferably in states or places where real estate is relatively cheap (or suits your budget) without compromising your needs. Research all the different taxes, mortgage contracts, and additional expenses you might have in the process and after sales. Move away from the big cities as much as possible, where costs of living and taxes are more expensive. There might also be housing programs in your state that are designed to help struggling families and individuals purchase a home through low-interest loans.
Buying real estate is always an investment, and it is a valuable asset that never depreciates from its actual value. Thus, in general, it is always better to have real estate property than to have none. However, it is always crucial to carefully research first all the implications, benefits, potential problems, and responsibilities when before buying real estate in a certain area. Do not impulsively buy a real estate property without thoroughly consulting with a trusted advisor first.
Our financial advisors at The Cutten Group Tokyo Japan will help you navigate the process of purchasing real estate that will surely last a lifetime, an investment you will not regret. Our financial advisors are always up to date with the latest and significant trends that enable our clients to make informed decisions with unmatched foresight and accuracy. Book an appointment with our expert financial advisors today.
