What makes a property purchase a good deal?
For some prospective buyers, there is value simply in finding the right home, in the right location, at the right time. Most investors, however, weigh a variety of monetary and economic factors and how they might affect price. Those might include the local tax landscape, any recent corrections in the housing market, the fundamentals of the broader economy, and, of course, the currency.
Right now, the U.S. dollar is cheaper compared to major currencies from its most important foreign buyer markets. Over the last 12 months, it has fallen more than 16% compared to the Mexican peso, nearly 16% compared to the Australian dollar, roughly 12% versus the Canadian dollar, and 9% compared to the Euro, British pound and Chinese yuan, according to figures compiled by the Dow Jones Market Data team, which measured the change from April 30, 2020 to April 30, 2021.
Of course, few real estate investors will make a final decision based solely on recent—or predicted future—foreign exchange moves. But currency is nonetheless an important consideration, and the weak dollar could make U.S. property more palatable for foreign buyers in the year, or years, to come.
Why the Dollar Has Less Value Now
Usually, the U.S. dollar is seen as a safe haven in times of crisis. That has what happened when the pandemic took hold last year. So part of the depreciation in dollar value we see today versus a year ago is simply the reversal of that trend, as vaccines are rolled out, lockdowns are lifted, economies revived, and the crisis subsides. It is simply money moving away from that safe asset again.
Another contributing factor is the fiscal stimulus provided by the U.S. government. In March, President Biden signed into law a $1.9 trillion rescue package, and he is now working on a $2 trillion infrastructure investment plan. Fiscal stimulus essentially puts more dollars in the market, driving the supply and demand of the currency.
Plus, according to Lawrence Yun, chief economist and senior vice president of research at the National Association of Realtors, that recovery funding is being financed, in part, by quantitative easing.
“We are raising the budget deficit level to heights America has not seen,” he said. “The weakening of the dollar I think is saying that some people are feeling uncomfortable about the U.S. debt, and the financing of the debt, the printing of money.”
Zoltan Szelyes, chief executive officer of Switzerland-based Macro Real Estate AG, echoed that sentiment.
“Certainly, with the whole increase in government debt in the U.S., a lot of people think the dollar will continue to depreciate because lots of people are now buying crypto and losing faith in the U.S. dollar,” he said. “People were buying gold after the last financial crisis, now they are buying crypto—it is a loss of faith in the monetary authorities.”
The depreciation has been compounded by monetary stimulus. The Federal Reserve cut interest rates last March, which undermined the dollar’s yield advantage. According to James Malcolm, head of FX Strategy in Global Research at UBS, the dollar had previously been relatively high-yield compared to other G10 currencies, but fell to “pretty much the bottom of the pile.”
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