In my first economics lecture at university, the professor showed us graphs comparing house prices in the UK and Texas over a 50-year period. Stripping out inflation, the UK graph showed a distinctly upward trend, whereas the Texan graph was cyclical but overall flat.
His point was that supply matters. Population and income growth have been stronger in Texas than in the UK, and real building costs have been stable in both. But because the supply of land in Texas is effectively unlimited - or "infinitely elastic" as my professor put it - long-run house prices have been constant.
This theme was taken up in a paper published last week by David Miles of the Bank of England’s Monetary Policy Committee. He cites OECD estimates of housing elasticity by country, pointing out that sparsely-populated nations tend to have more responsive housebuilding industries than densely-populated ones. Sure enough, the country with the most elastic housing supply of all is the US.
None of this will be surprising to those who have followed the dramatic rise and fall of US house prices over the past decade. Unlike its UK equivalent, the US housing boom also sparked a building bonanza, with monthly housing starts peaking at 2.3m in early 2006, compared with a historical average of 1.5m. Combined with lax lending practices, this created a vast 'shadow inventory' of homes in or threatened with foreclosure - the US equivalent of repossession - which has pushed down prices almost continuously for nearly six years.
Some UK savers have found this inventory a superb source of income investments. Having played a game of "snakes and ladders" with shares for several years, Lynn Martin bought her first US house in Atlanta last January for the equivalent of £40,000 after reading an article in the Daily Mail. Having secured a tenant paying $950 a month by April - giving a gross annual yield of 18 per cent - she decided to purchase two more properties from Southampton-based supplier Belgrave Group, which buys them out of repossession. "This is a real asset with real people. I prefer that to a faceless piece of paper in a bank," she explains.
The high rental yield of US houses makes them a very different investment proposition to UK houses - as we would expect given the different supply dynamics. UK buy-to-letters are effectively trading income for the privilege of holding a scarce asset, with its promise of capital gains. US buy-to-letters receive around twice the income - net yields range from 10 to 15 per cent for repossessed stock - but can't expect real gains unless they successfully buy at the bottom of the cycle.
So are we now at that bottom? Talk of economic recovery in the US has unleashed speculation that the housing market, where the credit crunch began, is turning - and vice versa. Shares in the US homebuilders have roared ahead of the S&P 500 since last autumn thanks to strong growth in orders. Housing starts were 698,000 last month, up from 611,000 on average last year.
But house prices are not yet following housing starts, if you believe the official indices. The S&P/Case-Shiller national home price index ended 2011 at a new low, with Detroit the only city up on the previous year. "The pick-up in the economy has simply not been strong enough to keep home prices stabilised. If anything it looks like we might have re-entered a period of decline as we begin 2012," lamented S&P's David Blitzer upon publication of the news last month.
One big problem is that the shadow inventory, although shrinking, still carries an estimated 6.4m homes. Bob Wetenhall, who covers the homebuilders for US broker RBC Capital, says prices have been falling because of the "necessary evil" of selling repossessions, which usually attract a 20 per cent discount and therefore drag the average down. But he says the demand side - jobs growth - is also essential to a house-price recovery; the recent fall in unemployment from 9 to 8.3 per cent, if sustained, could "change everything".
Investors can reduce their chances of catching a falling knife by buying a US home out of repossession. But that comes with other risks - repossessed homes require refurbishment, which is hard to manage from across the Atlantic, and can be difficult to insure. After experiencing these and other "challenges", Stuart Law, chief executive of property broker Assetz, now steers his clients towards the upmarket Florida market, where net yields are a more modest 9 per cent. High-yielding Detroit is "too dangerous in every sense", he warns. Belgrave Group also used to buy homes in Detroit, but has pulled out in favour of economically healthier Atlanta.
Buying abroad goes against the first rule of buy-to-let, which is to know the local market. For some, the high yields will be ample compensation for the risks that involves. But it's worth bearing in mind that such yields are also available closer to home. Frazer Fearnhead, founder of investment companies The Armchair Property Investor and The House Crowd, sources houses in rundown bits of Manchester for as little as £30,000. He says they're "not attractive", are typically let to council tenants and offer little prospect of capital growth. But they do throw off gross yields of up to 20 per cent. It seems my professor's limited-supply theory doesn't apply in the UK - if you stray beyond the home counties and cathedral cities.