I was going to date this article April 1st but I suddenly realized that you might have considered it an April Fool’s joke.

Believe me, it’s not! I have always been somewhat contrarian, especially so when I see or hear the “experts” trying to explain on TV or radio, why what they said would happen last week, did not in fact happen.

It’s like the weather forecast, you’ll always get it right some of the time, but you may get it wrong more often than not. In fairness, to the experts, it’s really hard to hit a moving target with so many variables at play. It’s the overly simplistic answers that worry me though.

I have written a fair bit about U.S. property purchase, and this is really an update. I continue to be amazed at the interest in buying property in the United States. I get at least one question a week on this topic. My answer, just so you can quit reading now, is “I would not do it!”

Have you seen any recent reports on Warren Buffet (regarded as one of the greatest of the world’s investors), buying homes in the U.S.?

(In fact he has just published a new article called: “U.S. Dollar to Lose Value in the Long Run.”

So why would you consider doing so?
(Now if you want to buy a vacation property, that’s a whole different kettle of fish!)

I may be very wrong on this one, and it would not be the first time, but I’m not buying into all the hype. Home sales in the U.S. have just plummeted, again. So you should rush in now and buy, right!? Excuse me! I don’t think so…. And I can give you any number of reasons why I would not do it.

As usual, we have the “experts” telling us how things are going to pick up in the next 12 to 18 months. Why?

Oh, because:

  • “Things may have bottomed out…”
  • “We expect….”
  • “All indicators suggest…”
  • “We know from past experience…”
  • “Etc…”
  • “Etc…”

Those of you who have some of my previous articles may remember the one on the request from Richard Nixon for a One-Handed Economist.

According to the U.S. Census Bureau, new home sales in the U.S. in February fell by just over 16%. This represents around 225,000 on an annual basis, and is the slowest rate recorded by the Bureau since they began tracking figures in 1963. (That’s a 48-year period!) They also reported that the median sale price fell 14% from the previous month to $200,000, the lowest value since December 2003. (Remember that as always with U.S. figures, different agencies report using different calculations.)

This is hurting the economy severely, and while the early stages of 2010 brought some optimism, it that did not last long.

This optimism again resurfaced in early 2011, so we saw a corresponding rise in mortgage rates. This left us again with the chicken-and-the-egg situation.

While raising rates a modest amount and spreading around the feel-good factor, tighter borrowing standards and the continuing, or even worsening lack of jobs, again affected housing demand negatively…. And so, we were back on the merry-go-round again.

Most current sales are of existing homes, and those tend to be mainly (but not all), in distressed areas. New home construction has already fallen dramatically, so much so that without an improvement there will not be sufficient units or homes available in the coming few years.

Now upon reading this you might be forgiven for saying: “Well there is proof that we should buy now.” Well, it would if we knew what was going to happen with the economy, and we don’t, and no one does!

Consider that Florida alone has well over a million vacant homes, and maybe closer to two million and you begin to see the size of the problem in the U.S. Almost half of Florida mortgage holders are “under water” – a situation in which they cannot recoup the value of their mortgages. The key is the economy and not housing or housing prices per se.

Of note here is that on the eve of the G20 meeting last week, China has begun making pretty serious noises about the U.S. dollar and that there should be other reserve currencies.

This represents their feeling on a reform of the global monetary system and could be considered as the “first round’ in China’s long-awaited view that we must move away from a dollar-centered global economy.

We’ve seen this coming for some time now.

These are sobering thoughts indeed, and I offer them for your consideration if you are thinking of a foray into the U.S. market.

Please see also my March 18, 2011 article for a broader perspective on the future of property values at: The Future of Property Values.

(Copyright Dara Fahy. All rights reserved.)