Real estate investing drives U.S. housing

Investors have spiced up the U.S. housing recovery.

They are responsible for one-in-five resale transactions, and could remain the driving force behind the housing market despite higher mortgage rates, says a BMO report.

“Investors are increasingly paying cash, lured by rising rents and low prices,” says Sal Guatieri, senior economist at BMO Capital Markets. “Low borrowing costs have led other investors into the real estate market.”

The report focused on investors in Florida. It suggests an investment in a typical property would, over 30 years, net an annual return that is 2.5% more than if the down payment was invested in a basket of stocks and bonds.

Read: U.S. markets the place to be

It adds, “Given nominal U.S. GDP growth is unlikely to surpass 5% year on average in the next three decades, financial securities will have a hard time outperforming property investments.”

Guatieri noted 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.

He adds, “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.”

Read: Should clients rent or buy?

This situation could provide benefit to Canadian property investors as well. According to another report, Canadian snowbirds are playing an important role in U.S. housing market recovery.

“There are two factors that are making Florida real estate an especially good value for Canadians,” says Jack Ablin, CIO of BMO Private Bank.

“First, Florida properties are a bargain compared to real estate in Canada. Second, the Canadian dollar remains relatively strong, arming [those] shoppers with extra buying power.”

Read:

Snowbirds fuel Florida housing recovery

Should snowbirds live in the U.S.?

U.S. housing surge will help Canada

5 questions to ask before buying a home