The U.S. dollar has become mighty once again. It has strengthened against most foreign currencies. That permits Americans to buy foreign products at cheaper prices and to travel abroad with fewer dollars. However in the opposite direction, the strong dollar means foreigners will face higher prices on American-made goods and will buy less of them, including real estate. There will be fewer foreign tourists in the U.S. as well in 2015.
Not too long ago, $1 could be converted for 100 Japanese Yen or 70 euro cents. Today, $1 gets a lot more: 120 Yens or 83 euro cents. Similar trends against other currencies can be observed. The reason is that the global economy is no longer growing. The only bright spot is the U.S., where GDP and job growth rates have been accelerating of late. This disparity in the growth rates has made the dollar become measurably stronger.
The table below shows what foreigners paid for U.S. real estate last year and what they are facing today given the stronger dollar. For Canadians, they are seeing 22 percent higher prices for a typical U.S. home after conversion. For Russians, prices are higher by 122 percent. Venezuela’s currency rate is fixed by the government but not available for transaction. On the black market it is estimated that U.S. home prices to have risen by 195 percent.
REALTORS® experienced 35 percent growth in sales of U.S. real estate to foreigners in the most recently measured period (March 2013 to March 2014 versus comparable one year prior period). Such a growth rate is unlikely for this year given the strength of the U.S. dollar. Russians and Venezuelans in particular are hard pressed. Professional hockey players in Russia are very envious of Washington Capitals star Alex Ovechkin, not because of his talent per se, but because he is getting paid in dollars and not in rubles.
Lawrence Yun is Chief Economist and Senior Vice President of Research at NAR. He directs research activity for the association and regularly provides commentary on real estate market trends for its 1 million REALTOR® members.