The Weak Dollar & NYC Housing
A: As the US Dollar continues its slide, foreign investors SHOULD (and I stress SHOULD) get more interested in US real estate; especially in big cities such as New York where foreigners usually live & work. When comparing a 1YR trading chart of the US Dollar vs. EURO I see that we are fast approaching a 12-month low as 1 EURO = $0.79 US Dollars.
Foreign investors whose currency is the Euro are enjoying such a strong currency these days that investing in US assets becomes a very wise investment. Before buying real estate in the US, the Euros are converted to US Dollars where they get much more bang for the buck than they did just 6 months ago. Look at this quick analysis of what 500,000 EUROS would buy you in US Dollars today vs. 6 months ago:
6 MONTHS AGO (1 EUR = 1.18350 USD)
500,000EUR = $591,750 US Dollars
TODAY (1 EUR = 1.26285 USD)
500,000EUR = $631,425 US Dollars
See what I mean! The same amount of EUROS buys you $40,000 more US Dollars today than it did 6 months ago! The US Dollar is still expected to fall which means EURO's will buy even more US Dollars down the road. By looking at the simple example above you can see how much money this actually equates to. Here is a chart so you can visually see the dropoff of the greenback vs. euro over the past 6 months:
Take a look at what investment mogul Warren Buffet said recently on his predictions of the US Dollar; so far he has been right on ("A Word From A Dollar Bear"):
Says Buffett: "The rest of the world owns $10 trillion of us, or $3 trillion net." That is, U.S. claims on foreign assets run to only $7 trillion. "If lots of people try to leave the market, we'll have chaos because they won't get through the door." In a nutshell, the trade deficit is forcing foreign central banks to ingest U.S. currency at a rate approaching $2 billion a day. Buffett continues: "If we have the same policies, the dollar will go down."What To Expect: As the US housing market continues to remain flat to down, foreign investors should be getting very interested in NYC real estate from a currency investment standpoint since the dollar is in freefall. As long as this trend continues, expect outside buyers of NYC real estate to help stabalize our housing market and provide a nice chunk of demand that most suburban markets will never see.
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Comments (2)
Until the budget or trade deficits have any hope of reversing a very bad trend the dollar will continue to slide and inflation can only increase here. RE is a good hedge in that environment.
HOWEVER, Wall Street Bonuses seem to be a more important driver. If the stock market crashes, I would expect that RE in NYC would drop by more than the weak dollar would pull it up.
Posted by peakguy | May 3, 2006 1:06 AM
Good points peakguy. I agree that IF the equity markets crash that would have a more devastating effect on NYC RE than the positive effect that a weak dollar would have.
However, I don't see the stock markets crashing at all. The economy is strong and corporations have been cutting costs and restructuring since the dot com boom and corporate scandals that rocked so many. Company's are simply run better these days and corporate profits are disploaying the effects of strategies that were put in place 3-5 years ago.
I see the free markets correcting oil after a few more months of volatility, and Bernanke learning from his first mistake as fed chief that he needs to be much more careful with his speeches to the public markets. All in all, interest rates are nearing a top and I dont see them going high enough to seriously slow down the economy or stock markets...
But thats just me. Invest in small cap; their hot!
Posted by Noah | May 3, 2006 3:31 PM