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Whether someone is buying or renting a house, there is a significant advantage if a home buyer pays in U.S. dollars. The dollar has surged against the British pound and euro in recent years. This led Americans to flock to countries like France and the United Kingdom to buy homes at a discount. The euro has since regained some of its strength, but those buying with the U.S. dollar can still see big savings in countries like Canada.
According to an analysis done by Mansion Global and the Dow Jones Market Data team, the U.S. dollar has about 10% more purchase power than Australia’s five-year average. Their market is being impacted heavily, boosting the affordability for overseas residents.
In Canada, however, the U.S. dollar has gained about 4.9% over the Canadian dollar and is up 3.4% from the five-year average. Whistler Real Estate Company has said that it led to a record number of American buyers in British Columbia. In an average year, Americans represent 10% of the firm’s buyers, however, this year, the share has jumped to over 14%. For homes that are priced at over C$5 million ($3.7 million USD), it is 27%.
Consensus expectations are being reversed as the dollar has reversed its decline from the start of 2023. The recent change has been the upward shift in expectations about the path that U.S. interest rates are taking. At the start of the year, it appeared that the Federal Reserve would end its rate hikes mid-year, as the rates began lowering in late 2023 or early 2024. During that time, central banks in other major countries continued their rate hiking cycles. Due to the surprising resiliency of the United States and the persistence of inflation pressures, expectations have changed.
The difference in interest rates between the U.S. and other countries reversed the declining trend in July. It started moving higher at a sharp rate, propelling the rebound in the dollar.
Contrasting the resiliency of the U.S. economy, growth in Europe and China has been weaker than expected. Europe’s largest country, Germany, has fallen into recession and high debt levels in the property sector, as well as a slow recovery from COVID-19 lockdowns that have held back China’s growth.
When the U.S. dollar strengthens, more foreign money flows into the United States compared to the other way around. However, as interest rates peaked, yet still rose in other countries, more money flowed out of the U.S. This has led to a moderate decline in the U.S. dollar compared to the euro.
Although the slight decline may affect some, there is no stopping the significant hike in the purchasing of foreign property. As real estate tends to appreciate over time, the weakening of the dollar in the future would cause the value of the property in foreign terms to increase further. Substantial returns will thus be found when the property is sold or rented out.
Overseas investments are at a high and could be beneficial to investments as well as choosing to allocate assets. Likewise, when the value of the dollar declines, property prices in the country become more affordable for those holding stronger foreign currencies. This can potentially lead to increased demand and drive up property prices. While the U.S. Dollar is up, American buyers will continue to be very active in the property markets of other countries.
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