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The Drawback of a Strong Dollar

As currencies lose value against a strengthening dollar, U.S. home purchases by foreign buyers decline

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As the dollar rises in value, property purchases by foreign buyers are suffering declines.

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As the dollar rises in value, property purchases by foreign buyers are suffering declines.
Getty Images

While the strong dollar is discouraging many foreigners from buying property in the United States, the country’s economic and political stability could help preserve its appeal with international investors. According to data from the Federal Reserve Board and CoreLogic gathered by the California-based property information provider, double-digit drops in the value of key markets’ currencies against the U.S. dollar show a strong correlation in declines in the number of houses acquired by buyers from those countries in the United States. Frank Nothaft, senior vice president and chief economist for CoreLogic, explored the trend in a blog entry on Monday. Between January and April of 2014 and the same period this year, “foreigner purchases were down between one-quarter to one-third for buyers whose currencies depreciated significantly relative to the U.S. dollar,” wrote the expert. More: Paris a Perfect Match for the Strong Dollar According to data, in the first four months of 2015, the Australian dollar lost 16% of its value versus the U.S. currency from the same period last year. During that time, Australians bought 24% less homes in the United States. Canadians, who, for the first time, fell to second behind the Chinese among international homebuyers in the U.S. for the 12 months ending March 2015, saw its currency go down 16% between January and April versus the same four months last year, reported Nothaft. Homes bought by Canadians in the U.S. declined 34% in the period. Buyers from Mexico, who are in the top five among foreign clients in the U.S. and number one from Latin America, suffered a 14% slide of the peso. Their purchases of U.S. real estate dropped 25%. The pound lost 10% and British nationals bought 29% less homes in the U.S. In contrast, the Hong Kong dollar retained its value between January and April, and residents from the Chinese territory increased their acquisitions in U.S. land by 5% over that period, reported CoreLogic.

The National Association of Realtors’ Profile of Home Buying Activity of International Clients released last month estimated the total dollar sales volume to international clients from April 2014 through March 2015 at $104 billion, a 13% increase from the previous 12-month period. However, the number of homes sold to foreigners declined approximately 10%, from around 232,600 houses to 209,000 units. The association attributed the weak sales to the strengthening of the dollar and negative economic conditions in Latin America and Europe, two main sources of international homebuyers for the U.S. Additionally, approximately 75% of realtors reported that changes in the value of the dollar were having an impact on potential purchases by international clients. “If the U.S. dollar appreciates further, it is going to get really costly for foreign nationals to buy in the U.S.,” Nothaft told Mansion Global. For Mexicans, for example, “the cost has increased between 20% to 25% in the last year,” he added. Adding to the pressure on foreign buyers, home prices in the U.S. are going up. More: At $10 Million, Buyers Lose Their Sensitive Side Last week, CoreLogic said that values nationwide increased by 6.3% in May compared with the same month in 2014, resulting in 39 months of consecutive year-over-year increases in home prices throughout the country. The trend is bound to keep upwards. CoreLogic forecasts that house prices will rise about 5% over the next 12 months. Still, the outlook for home purchases by international clients might not be as gloomy as some may think. The purchasing power of the average foreign citizen investing in U.S. real estate and the relative safety of the U.S. market could shield international shoppers from currency swings. “Foreign nationals making an investment decision tend to be high-income individuals,” said Nothaft to Mansion Global. According to the NAR report, these individuals “are an upscale group of buyers”, paying in the 12 months through March 2015 an average of nearly $500,000 for a house, compared to the overall U.S. average house price of about $256,000. Furthermore, about 55% of reported international transactions were paid all-cash. Nothaft said that foreigners buyers who decide to put their money in property, and after evaluating several countries, would still see the U.S. as a safe bet. “The U.S. market tends to be attractive because of its economic and political stability, transaction transparency and the fact that there are very few restrictions to foreign property,” said the expert. In the 12 months ending March 2015, the percentage of realtors working with international clients increased 7% over the previous year, according to NAR.