ORLANDO, FLORIDA -- (Marketwired) -- 07/12/13 -- Investors have spiced up the U.S. housing recovery - accounting for approximately one-in-five resale transactions - and could remain a driving force for some time despite higher mortgage rates, according to a feature report published today by BMO Economics.
"Investors are paying cash, lured by rising rents and low prices, which explains why sales are rising even as mortgage purchase applications have remained near 15-year lows," said Sal Guatieri, Senior Economist, BMO Capital Markets. "Low borrowing costs have led other investors into the real estate market."
The report, which focused on Orlando, Florida, suggests that an investment in a typical property would, over 30 years, net an annual return that is 2 1/2 percentage points more than if the down payment was invested in a basket of stocks and bonds. "Given that nominal U.S. GDP growth is unlikely to surpass 5 per cent per year on average in the next three decades, financial securities will have a hard time outperforming property investments."
Mr. Guatieri noted that if Orlando is representative of the typical post-bust real estate market, then mortgage rates could increase at least another percentage point before many investors think twice about real estate. "Until then, likely in 2015, the investment tailwind on housing's back should persist, just as more first-time homebuyers are drawn back in the game by lower unemployment, easier loan standards and relatively good affordability."
This situation could provide benefit to Canadian property investors as well. According to a recent BMO report, Canadian Snowbirds are playing an important role in the recovery of the Florida housing market.
"Beyond the obvious attraction of great weather and beautiful beaches, there are two factors that are making Florida real estate an especially good value for Canadians," said Jack Ablin, Chief Investment Officer, BMO Private Bank. "The first is that Florida properties are a bargain compared to real estate in Canada. At the same time, the Canadian dollar remains relatively strong, arming Canadian shoppers with extra buying power."
To download the complete report, click: http://www.bmonesbittburns.com/economics/focus/20130712/feature.pdf.
About BMO Harris Bank
BMO Harris Bank provides a broad range of personal banking products and solutions through over 600 branches and approximately 1,300 ATMs in Illinois, Wisconsin, Indiana, Kansas, Missouri, Minnesota, Nevada, Arizona and Florida. BMO Harris Bank's commercial banking team provides a combination of sector expertise, local knowledge and mid-market focus throughout the U.S. For more information about BMO Harris Bank, go to the company fact sheet. Deposit and loan products and services provided by BMO Harris Bank N.A. Member FDIC. BMO Harris Bank(SM) is a trade name used by BMO Harris Bank N.A. BMO Harris Bank is part of BMO Financial Group, a North American financial organization with approximately 1,600 branches, and $555 billion in assets (as of April 30, 2013).
About BMO Financial Group
Established in 1817 as Bank of Montreal, BMO Financial Group is a highly-diversified North American financial services organization. With total assets of $555 billion as at April 30, 2013, and more than 46,000 employees, BMO Financial Group provides a broad range of personal and commercial banking, wealth management and investment banking products and solutions.
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Matt Duffin, Toronto
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