What A Weak Dollar Means For Property Investors

Weak dollarYesterday a few friends and I from the office were discussing the recent weakening of the US dollar and what this will mean for property investors.

Currency fluctuations can have a dramatic impact on property investment overseas, yet if you raise the subject in a room of people, few will be willing to put their neck on the line and say what they think will happen with any certainty. You are more likely to get answers like “I don’t think it makes any difference” or the “I’m not sure, so let’s just ignore it” type of response.

So I’m going to put my own neck on the block and give you my humble opinion on what we can expect this year. After a period of dollar strengthening in the second half of 2011, it looks like we are heading for another period of weakness similar to the start of 2011.

Despite the obvious problems in Europe we have seen the euro continuing to rise against the dollar and the same happening with the pound.

You Get More For Your Money

The most obvious benefit of this to anyone who deals in those currencies is that they will get more for their money and that of course includes property. Now when we are talking about the large sums involved in property investing, currency rises can make a big difference to the price you pay.

The dollar hit nearly $1.70 to the pound in 2011 before falling back to $1.53, however there are clear signs this month that the value of the dollar is again declining. If the dollar returns to the level it hit at the start of last year then this would be like having an extra 10% discount on a property.

This will only improve the situation for investors entering a market where house prices have fallen 20% to their lowest levels since 2004 in some US States including states like Florida and cities like Atlanta. This is to the point where experts are saying that these markets are undervalued.

You Get Value For Money

If you happen to be considering buying a property in Florida, there has probably never been a better time to invest with foreign tourism likely to increase when you consider the value for money you would be getting over more expensive holiday destinations elsewhere.

You Get Property That Pays For Itself

Of course there is a flipside to all this good news. US citizens will be having to pay more for their goods and services as the price of oil increases, this situation will be compounded by those in the unfortunate position of being unable to pay their mortgages.

This will inevitably push up rents as has been the case in Atlanta where rents are now 50% higher than mortgages. Yields will also increase in the long term with property in areas like Florida now said to be 13% undervalued.

With recovery in the US housing market now widely assumed to be underway, property investors holding stronger currencies can enjoy the party while the opportunity presents itself.

Please give us your view on what a weak dollar means for property investors and why. Please leave your comments below.

Kind regards

Loxley McKenzie
Managing Director

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