Some foreign investors are shying away from investing in the US real estate on the back of a strengthening dollar. Investors have realized that a real-estate market, which was down for several years and offered good bargains has now turned non-profitable because of a rising dollar that has eclipsed their native currencies.
According to Stan Humphries, chief economist at real-estate website Zillow Group Inc(NASDAQ:Z), foreign buyers have been a big part of the rebound in home prices in the US. The recent strength of the US dollar has significant implications for the attractiveness of the market for foreign buyers.
Data from Zillow on the contrary, indicates that the US real-estate values have risen about 5 percent in dollar terms as compared to last year, after 2012 and 2013 reported stronger gains.
However, users of many foreign currencies have a different story to tell. Zillow says for a ruble-using Russian investor, the price of real estate in Miami in February was double that a year earlier. Similarly, a Eurozone resident buying property in New York City had to pay 24 percent more during that time, while a Canadian now faces a 20 percent price increase to buy a home in Phoenix.
The domestic housing market values Canadian buyers with high importance. In 2014, they constituted 19 percent of all international transactions, a drop of 4 percent from 2011, based on a National Association of Realtors report.
Peter Terracciano, owner of the RE/MAX Consultants agency in Palm Desert, California, said business in seasonal vacation properties, majority of which are purchased by Western Canadians, has seen a decline of 30 percent from one year ago. The contrast is even starker for properties valued at $1 million or more.
Terracciano said his Canadian clients are not willing to lose a quarter-million on the currency conversion. Some of them are instead looking to sell their property to benefit from the currency fluctuations, he added.
It’s a similar story in the Phoenix area. Buyers jumped onto the bandwagon on the back of declining home prices due to the recession, at a time when the Canadian dollar was comparatively stronger. In March 2011, Canadians constituted 5 percent of all home sales in the Phoenix area, according to the W.P. Carey School of Business at Arizona State University. The figure has fallen to just 1 percent of sales in March of this year.