You’ve seen the headlines. The combination of lower prices, increased rents and a weak dollar are drawing investor capital from all around the globe and funneling it into American housing. According to NAR, foreign investment is US real estate has increased by 20% in the 12 months ending march 2011, totaling $82 billion in just one year. What’s missing in most of these stories is why.
Why are overseas real estate investors, who are standing thousands of miles away with little if any personal experience in US real estate, pouncing on this opportunity? Low prices and great exchange rates don’t explain it. If you hear of a stock that has plummeted, would you buy it based on that fact alone? Or would you want to understand the fundamentals of the company behind the stock. What do they produce? Who are their customers? Why should you believe this investment will pay off, as opposed to seeing the new low price as an accurate reflection of the value of the company? In other words, if it’s a piece of junk, you wouldn’t care how cheap it is.
I would suggest that the thousands-of-miles-away perspective is exactly right for the American housing market. What's wrong is the short attention span, immediate gratification, “what have housing prices done this month” mentality that we seem obsessed with.
Too many people subscribe to that “throw the baby out with the bath water” attitude and can only focus on what has happened in the past five years, and they ignore what happened for the 85 years prior.
Stand back, like an overseas investor, and what do you see?
America is still the best place in the world to bring your work ethic and your dream.
- America is still the best place in the world for entrepreneurs to bring their ideas.
- America is still the best place in the world to acquire personal property and know it is protected by law.
- Even though our politics are rabid these days, we don’t get stuck with a government we don’t like for very long.
- People who are born here want to stay (except for Johnny Depp).
- People who aren’t born here want to come here by the millions.
- All of us want to live indoors, therefore demand for housing can be counted on for the next century.
Overseas investors get it because they see the stark contrast between the US and much of the rest of the world. They can’t take for granted what they don’t have.
Compare them to some people in our country by doing a little experiment. Put a video on YouTube that dares to profess a positive outlook for the housing market, and get ready for a backlash by a bunch of angry, bank hating, no perspective, “I love my computer, iPad, free email and YouTube, but I hate capitalism” types. They are too close to the situation to see it clearly. They are safe, comfortable and anonymous, and therefore free to be angry and belligerent. They say “Because some people got hurt in the housing market by doing it wrong, all real estate is wrong.” They will look back, having missed the opportunity of their lifetime, and find someone to blame.
Don’t listen to them. Instead, watch what foreign investors are doing and follow their lead.