Why US property is not out of reach for Israelis

For potential investors in residential properties there are steadily increasing prices and the prospect of consistent rental income.

By AARON HAROW
Money 311 (photo credit: Bloomberg)
Money 311
(photo credit: Bloomberg)
Much has been made of the need to reform Israel’s housing market. So much so, that promises to make residential property more affordable became a regular feature of the recent election campaign. With prices having increased by 20 percent since 2010, investments in the Israeli housing market are at a premium. Nonetheless, there are still several exciting emerging markets that are worth investigating, especially outside of Israel’s congested center.
At the same time though, it is an opportune moment to think a little more broadly and look further afield. Although at first glance investing in a US property might appear out of reach, if you know where to look, there are numerous affordable and profitable investment opportunities.
In contrast to the market in Israel, housing in the United States has bottomed out following the property crash of several years ago. As a result, prices are on an upward trajectory, and it appears that the US housing market is finally on the road to recovery. The UBS Real Estate Research and Strategy division says prices of both new and existing homes in the US have been rising since the third quarter of 2011, while the median price of existing single-family homes increased by 8.8% over the same period of time. Nonetheless, prices are nowhere near their peak levels of 2006.
Consequently, the market is in a state of gradual recovery. As such, there is a window of opportunity, whereby purchases remain affordable while investors can also expect a steady growth in the value of their property.
At the same time, the rental market in the US remains relatively stable. If anything, with so many people having had their fingers badly burned in the quest to purchase a home a few years ago, the demand from would-be tenants has become more intense. For potential investors in residential properties, steadily increasing prices and the prospect of consistent rental income is a slam-dunk combination.
The result is both an immediate return on investment and solid growth in the value of the asset.
While all of this sounds good in theory, in practice, the trick is of course to find the right opportunities. After all, purchasing property in the bright lights of Manhattan or overlooking the golden beaches of California remains the preserve of the rich and privileged. For the average Israeli though, there are many affordable and sensible locations in which to invest.
The savvy investor will look for options in a US city where prices are traditionally low but have maintained economic stability regardless of the crash. This combination is a recipe for a good value purchase and stable rental income. Cities such as Houston are a good match, with the energy sector continuing to create jobs in an area where home ownership has always been relatively modest.
However, the standout investment location is Pittsburgh, which was voted by realestate experts as the most promising city in 2012. Historically, it is an affordable city, especially in comparison to other major US conurbations. Figures from last year showed that the average cost of a home in Pittsburgh was a relatively cheap $168,612.
Crucially, in recent years, Pittsburgh has also displayed an impressive adaptability and has evolved from its industrial steelmaking past into a city with a growing reputation in technology, health care and education.
In 2010, Forbes even ranked Pittsburgh as the most liveable city in the US and one of the top 25 places to retire in 2012. The evident high standard of living in Pittsburgh has had an inevitably positive impact on the housing market. At the end of the day, Pittsburgh’s robust economy and desirable lifestyle are the best guarantees of a profitable long-term investment.
Although the debate continues to rage in Israel over housing reform, things look unlikely to change anytime soon, and anyone who does invest will probably continue to see unimpressive returns. At the same time, housing in the US is beginning to prosper from the green shoots of recovery, and that results in perfect conditions for a profitable investment. Consequently, while considering making a purchase in Givatayim, Ra’anana or Poleg, it is also wise to think about turning your attentions to McKeesport, Penn Hills and Carrick in Pittsburgh.
aaron@pghpgh.com Aaron Harow is a consultant at PGH Investments Inc., a US real-estate investment firm with representation in Israel.