One of the major challenges in choosing a region to buy property in – with a view to rental income, future resale value and salability – is to understand the various cycles that influence property values. Not only the value of the property today, but also the future value.

Future resale value will be of more concern to some buyers than others. If you are purchasing a property that you plan to live in for the rest of your life – say as a retirement home – then future price trends will be of less interest than if you are looking at the economics of a five or 10 year investment period.

Property owners in the UK have now experienced a fairly consistent period of growing property prices over quite a long time. Sometimes the growth has been moderate, sometimes – and in some parts of the country in particular – it has been very fast indeed. A large portion of the increased spending power of many families is funded by the rising value of property over the years since the previous generation climbed the first steps of the property ladder.

Consequently, the current generation of British homeowners could be forgiven for assuming that property prices simply keep on rising; it’s just what they do. And it’s no surprise that when they look at property further a field, British buyers often assume that the same unwritten laws apply in other countries too.

However, such assumptions can be dangerous when considering buying property overseas. There are enough underlying similarities to make the careless buyer think they are just getting a great deal on amazing properties – but also enough differences to recommend that the careful buyer does their research and enters in to any purchase with their eyes fully open.

Working out how current values and recent trends will influence future values is not easy – yet it’s important to have some understanding of these factors when assessing areas you might want to look at in more detail

BROAD SIMILARITIES
In the big picture, the USA generally was enjoying a construction boom, driven by the demand of a growing population – especially of the “baby boomer” generation who tend to leave the family home earlier than in the past and more frequently set up home as singles, couples or small families. Add in higher than average salaries and you had all the fuel necessary to drive property prices upwards.

The Florida property market in particular has recently gone through a period of rapid price increases driven by demand in key areas. As in the UK, the developers have responded to the demand by building new homes in record numbers – and over supply along with mortgage concerns has now led to an overall slow-down in both supply and demand, with fewer plans in place for new developments, and a flattening and in some cases reduction of prices.

Mortgage rates also have an ongoing effect on demand.

Not everyone thinks this is a bad thing. For property owners looking at the long term, a steady increase in the value of their property is often preferable to the boom and bust cycles that can leave them very uncertain as to their financial security. And for new buyers, slow steady growth means they can take the time necessary to make a considered decision about buying property in Florida without the added pressure of rapidly-increasing prices all around them.

LOCAL DIFFERENCES
Some of the factors under consideration may seem at first to be very general – almost global in their influence. For example, an adjustment of the value of the dollar against the pound, or an increase in the cost of aviation fuel will affect much more than the price of property in Florida. However, when you consider the significance of Florida as a destination for British holidaymakers, who all arrive by air – the impact of these changes is magnified disproportionately on the Florida property market.

While no-one is predicting a dramatic drop in property prices, the combination of these general factors with specific local situations suggest that potential buyers should keep a watchful eye on values across the state.

Orlando, for example, has for the longest time been almost synonymous with Florida in the minds of British tourists, many of whom looked no further a field when deciding to buy property. This has resulted in a dramatic rise in the number of British-owned short term let properties. A large proportion of these were bought during a period of booming prices, funded by mortgages that were calculated on attractive exchange rates and optimistic occupation levels.

It is possible that in the near future, these owners will have to lower their expectations, especially if factors such as the aforementioned exchange rates and travel costs result in significantly reduced visitor numbers (and rental incomes). Under these circumstances, many of these owners may choose to bail out of the market, creating a glut of rental-level properties and no doubt impacting on values.

It is also fair to say that there have been large numbers of rental properties purchased in popular areas across Florida without enough thought given to the effect of the increasing competition. This has created a large pool of attractive properties – some of which again may become available at lower than expected prices if their rental income cannot cover the owners’ costs.