The Falling Dollar and Real Estate Investors

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Want to watch someone’s eyes rapidly glaze over at a holiday party? Just start talking about how the dollar is falling against other world currencies. Most people don’t understand what that means. They don’t care either because they don’t understand how or why it affects them. They just assume that when something falls, or goes down, it’s bad. But is it?

Here’s a real definitive answer – it depends. Long-term a strong dollar is a sign of a healthy economy. However, in the short-term there are good and bad effects.

The Bad

Most people do understand that when the dollar falls in relation to the Euro, Yen, and other currencies the price of imported goods will rise. Much of the recent rise in oil is the result of the falling dollar. Foreign automobiles will be more expensive as will all other goods brought into this country.

A weak dollar can cause other countries to lose confidence in the United States as well. The dollar has long been the world’s reserve currency. That position gives this country a lot of leverage in world affairs. Lately there has been talk of stripping the dollar of that status. The average person isn’t concerned about that, but it’s not good.

The Good

The positive impact of a falling dollar is that goods produced here have become cheaper to the rest of the world. If foreigners purchase more goods from the United States it helps our domestic economy. It also makes this country more attractive to foreign visitors because their money goes further and that is good for tourism.

If goods produced abroad have become more expensive it makes domestic goods more attractive to Americans. If they spend their money at home it can help pull this country out of the recession. Foreign travel has become more expensive and that also encourages Americans to vacation in their own country rather than spend their money overseas.

Real Estate

But what about real estate? Let’s assume you purchased a home just before the bubble for $100,000. You’ve watched the value skyrocket only to come plummeting back down to the same price you paid for it. To you the price hasn’t changed. However, in that same time the dollar has lost about half its value to major foreign currencies. That means that an overseas investor will see this as a bargain since, to them, the price is 50% of what it was.

So what you say? That means increased foreign demand for US real estate. That can help stabilize prices here and actually help them increase. So while there may be storm clouds on the horizon, such as inflation and higher interest rates, the short-term isn’t all bad.

A weak currency is the sign of a weak economy, and a weak economy leads to a weak nation. – Ross Perot

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6 Comments

  1. Richard is correct. Think of this as an opportunity to find investors outside the United States. There are plenty of people all over the world looking to get involved in real estate in the USA because to outside investors America is on sale!

  2. Richard is correct. Think of this as an opportunity to find investors outside the United States. There are plenty of people all over the world looking to get involved in real estate in the USA because to them it is on sale!

  3. Pingback: Real Estate Investing Links for December 9, 2009

  4. Great article Richard. I think it’s pretty sad that people don’t have at least a basic understanding about the dollar, which shows a major flaw in our education system. Most people think that the money just comes from the bank.

    On a positive note, I might have to start adding foreign investors to my buyers list!

  5. Very true, as over the last year I have been seeing more foreign investors buying properties up – typically in cash transactions. Even setting up local llc’s as property management for their portfolios.

  6. Interesting how this has played out since this blog post. Very true there were indeed foreign investments, although I must say they may not have been as big in Atlanta as some other cities. It surprised me how long it took for Florida to get out of the doldrums with what I would have perceived as very popular real estate for the foreign investor. Then again, the dollar has certainly strengthened relative to most other currencies.

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