One Reason U.S. Real Estate Can't Crash
By Dr. Steve Sjuggerud
June 22, 2007
Greetings from Sligo, Ireland...
County Sligo is as close to the middle-of-nowhere as you can get. We've been here in Sligo (pronounced "sly-go") for days now, and we can't much figure out what people do here. It's your basic, regular town. Yet the average asking price for a home here in Sligo is 354,767 euros according to the May 2007 issue of Business Sligo magazine. At current exchange rates, that's an astounding US$475,368.
I couldn't believe it.
This trip was yet another reminder to me that U.S. real estate isn't that expensive when you compare it to real estate around the world. In the United States, the median price of an existing home is US$220,900, less than half the average asking price in middle-of-nowhere Ireland.
This U.S. median price, of course, includes the expensive places – New York and California. If you look at just the Southeast, even including Florida, the median home price drops to only $181,100.
If you like rain, cold, and not a whole lot going on, Sligo is a fine place. I actually like visiting here. We've been lucky. It hasn't been as cold or rainy as it should be this time of year. But I'd much rather live in Florida. Amazingly, you can live in Florida for half the money you need in Sligo. It's not just Sligo...Irish house prices are up 251% since 1997, according to the latest issue of The Economist. Home prices from Britain to South Africa are up by hundreds of percent. Yet the same magazine says U.S. home prices are up by only 103% in the same amount of time. Said another way: Sure, U.S. home prices have risen in the last 10 years, but not nearly as much as many other countries. Also, I believe that U.S. home prices were starting from a low base... they had room to rise. Foreigners now think that U.S. real estate is dirt-cheap.
Tom Dyson is from London. He moved to Florida to co-write Daily Wealth with me. He can't believe you can buy a three-bedroom, two-bath house a half-mile from the beach for less than $250,000. But dozens of them are available right now. "You can hardly buy a closet in London for that price," Tom says. U.S. real estate is always in demand by foreigners. For many, it's a nice way to get some assets out of their own country and own something "real." If you doubt me, visit Miami.
This trip to Ireland has been a good reminder to me... there's an underpinning to Florida real estate that won't let it crash dramatically. And that's buying by foreigners. Europeans buy in Florida because the weather is nice and real estate is cheap. Latinos buy to get money out of their own countries. I doubt either of these buyers will go away anytime soon. It may take years to "burn off" the supply of homes available for sale on the market now. So we may not see much price appreciation for a while. But I don't think we'll see a dramatic fall in prices either.
Yes, U.S. home prices have run up in recent years. But when you get out and see the world, you find that U.S. real estate is simply not that expensive for what you get. The fears of a housing crash nationwide are overblown.
Good investing,
Steve
PS- Dr. Steve Sjuggerud is founder and editor of True Wealth, a financial newsletter that focuses on finding some of the least risky investment ideas around the world. You can catch him and his partners at www.dailywealth.com.
