The 20th century belonged to the USA in terms of economic dominance. So how did the crash happen? And what opportunities are there for property investors?

North America has been the most powerful nation on earth with a GDP that dwarfs the vast majority of other countries. With this came an unstoppable property market; investors were buying up land and houses all over the country. In mid-2007 this took a turn for the worse, and property prices came crashing down as the country slid into recession.

In 2010, the economic recovery is underway, and investors are starting to look for opportunities in the property market, especially foreclosures. So how did the crash happen? And what opportunities are there?

In June 2007, Standard & Poor's warned that US homeowners with good credit were increasingly falling behind with their mortgage payments, an indication that lenders had been offering higher-risk loans outside the sub-prime market. They said that an increase in late payments and defaults on 'Alt-A' mortgages made in 2006 were "disconcerting", and that borrowers appeared to be finding it increasingly difficult to refinance or catch up on their payments. Late payments of at least 90 days and defaults on 2006 'Alt-A' mortgages had increased to 4.21%, up from 1.59% for 2005 (Standard & Poor's, June 2007).

On 31st August, 2007, concerns about the impact of the credit markets led President Bush and US Federal Reserve Chairman Ben Bernanke to announce a limited bail-out of the US housing market for homeowners who were unable to pay their mortgage debts. President Bush said his administration wished to "help people who have good credit but have not made all their payments on time because of rising mortgage rates." However, homeowners with sub-prime loans have poor credit by definition, so the scope of the plan was not entirely clear.

In 2007, the United States' sub-prime mortgage industry collapsed due to higher than expected home foreclosure rates. More than 25% of sub-prime lenders have declared bankruptcy, announced significant losses, or put themselves up for sale (Business Week, 2007). The stock of the country's largest subprime lender, New Century Financial, plunged 84% amid Justice Department investigations, before ultimately filing for Chapter 11 bankruptcy on 2nd April 2007, with liabilities exceeding US$100m (Market Watch, 2007).

As many as eight million homes were expected to go into foreclosure in 2009, and sales of new homes dropped 14.7% in December 2008 to the lowest level on record. Unemployment rose to almost 10% in 2010, prompting slower sales and more foreclosures (US Department of Commerce, 2010).

In 2010, whilst the country is out of recession and the economy is in recovery, the housing market is still creating distressed sellers. When a homeowner can no longer afford to pay the mortgage, the bank purchases the house, called foreclosure, and then sells it on, typically at well below market value.

Overall, it is projected that 1 out of every 200 homes will be foreclosed upon and owned by the bank. Every three months, 250,000 new families enter into foreclosure.

Distressed property in the foreclosure process in the US is selling at an average of 27% lower than other real estate with almost a third of all transactions involving those in some stage of mortgage distress, the latest data shows. The average price of a distressed property is now US$171,971 (Property Wire, 2010).

For property investors, this has created an opportunity. These properties are already valued at more than the purchase price, and as the economy recovers, they will grow in value. As they grow in value, many investors are renting their properties on the private market, or gaining assured rental via the various government-backed housing programmes.

United States Department of Housing and Urban Development (HUD) have a federal assistance dedicated to sponsoring subsidized housing, more commonly known as Section 8.

The bank owned properties are sourced by local companies who have the appropriate contacts within the various institutions, local management companies enter these properties into the HUD programme and investors can assure their income from the stability of a government and federal programme.

The investment vehicle is ideal, benefiting the investor by providing monthly returns as well as capital growth in the asset. As well as this, investors support environmental sustainability, empty houses are recycled rather than demolished, benefiting the local community by providing families much needed homes and regenerating the surrounding areas.

Property4closure is run by a team which has been working with property in the US, and throughout the world, for many years, understanding both the process involved and what makes a good property investment. We pride ourselves on providing access to investment opportunities which have low-entry costs, generate high returns, and are fully managed by our management team in Detroit. All of our properties come at a high standard, fitting the strict criteria for entry into the Department of Housing and Urban Development's (HUD) Section 8 scheme.