U.S. employers added another 215,000 jobs to the economy in July and unemployment held at 5.3%, the Labor Department reported Friday. Monthly job growth has averaged 211,286 this year, a level indicating employer confidence in the U.S. economy. A buoyed U.S. economy and a strong dollar could reduce affordability for some buyers in the top end of the market, including some foreign buyers looking to U.S. real estate as an investment-only purchase, economists say.
Higher Mortgage Rates Ahead?
The Federal Reserve has kept its short-term rate near zero since the financial crisis in 2008 to spur investing, spending and borrowing. With a more robust job market, the Fed is closer to deciding on discontinuing near-zero rates to banks. This could lead to higher interest rates for consumers, including for mortgages. The average 30-year-fixed mortgage climbed from 3.7% in January to its peak at 4.2% in June this year, according to mortgage data tracked by realtor.com. "The good news for the housing market is if there is some short-term disruption as rates start to move up, [in] the medium- to long-term the housing market tends to eventually correlate with the overall economy," said Ryan Severino, senior economist at commercial real estate research service Reis Inc. "We have this sort of negative knee-jerk reaction to higher [interest] rates, but in the long-run they tend to not be the death knell that people pretend them to be," Severino said.
Foreign Buyers and the Strong Dollar:
A strong dollar with economic improvements could make real estate a less attractive investment for some foreign investors, real-estate economists say. "My expectation is as the dollar continues to strengthen that it becomes a real hurdle for foreign buyers in some markets," said Michael Fratantoni, the Mortgage Bankers Association's chief economist. The share of international buyers has already begun to slow with a stronger greenback. The portion of foreign buyers dropped to 1.4 % in June from 2.2% at the same time last year—it's second-lowest point since 2011, according to NAR’s International Buyers surveys. But Severino, the Reis economist, said that foreign buyers would remain active despite a strong U.S. dollar. "A lot of foreign buyers look at the United States as a measure of safety above and beyond the investment prospects," said Severino. "So, they'll still find ways to place money in U.S. real estate, but maybe the price point wouldn't be as high in some instances."