Although home sales in the U.S. have reached their highest peak since 2007 during the first four months of 2015, foreign homebuyers are not adding to these growing sales. According to a blog by Frank Nothaft, CoreLogic’s chief economist, in relation to the same period one year ago, home sales jumped 9 percent with the help of lower fixed mortgage rates by one-half percentage point, but foreign buyers did not help with this increase.
Nothaft noted that in a National Association of Realtors (NAR) report, the number of U.S. homebuyers who identified as international dropped to 2 percent during the first four months of 2015 from 2.5 percent a year earlier. This equaled a 19 percent decline. Approximately three-fourths of real estate agents who work with international clients said that foreign exchange rate changes have a moderate to very significant effect on foreign homebuying.
“The U.S. dollar has strengthened against currencies used by many foreigners who buy homes in the U.S,” Nothaft said. “From the beginning of 2014 through April 2015, the U.S. dollar had appreciated 10 percent relative to the United Kingdom pound, 13 percent relative to the Canadian dollar, and 26 percent relative to the euro. Notable exceptions to these large swings in foreign exchange values were the Chinese yuan and Hong Kong dollar, which have closely tracked the value of the U.S dollar.”
According to the blog, a stronger U.S. dollar makes property more expensive for foreign buyers who have weaker currencies. This explains why foreign buyer purchases have dropped, mostly for those that were affected by the foreign exchange swing.
“Between the first four months of 2014 and the same four months of 2015, the number of homes sold to foreign buyers drastically declined,” Nothaft said. “Foreign purchases were down between one-quarter to one-third during this period for buyers whose currencies depreciated significantly relative to the U.S. dollar, even though domestic purchases rose.”
On top of the sticker shock caused by the stronger U.S. dollar, Nothaft says that the markets where foreigners tend to buy have also had strong home price appreciation in the last few years.
“Foreign buying could continue to decline, level off or increase in 2016 depending on the value of the U.S. dollar relative to most foreign currencies, but the uncertainties surrounding how the Eurozone will resolve the debt crisis in Greece has made it more difficult to project foreign currency movements,” Nothaft concluded.