Interest Rate Rise May Rattle Foreign Buyers

/blog/interest-rate-rise-may-rattle-foreign-buyers/

American home-buyers are anxious about the Federal Reserve’s choice to raise the Federal interest rate by .25 percent this month. They might be overreacting just a touch: Even with the average rate of a 30-year fixed-rate mortgage looking to rise above 4.0 during 2016, things are still looking relatively well for American buyers in the near future.

One group of property hunters should be more concerned about the rise in interest rates however: foreign buyers.

You may have heard analysis correlating the rise in rates to the Fed’s confidence in the American economy. That’s true. The value of the dollar is up 20 percent from 2012, and stronger interest rates mean the strength of U.S. currency will rise further. That’s bad news for people looking for homes in the U.S. who don’t usually deal with its currency.

For example, Canadians have been the largest foreign group buying property in the United States for a while. Unfortunately for them, the Canadian dollar has lost 33 percent of its value against the American dollar over the last three years. Add that to the 24.7 increase in U.S. property prices over the same period and it’s now 55.7 percent more expensive for a Canadian shopping homes in the U.S. Mexican nationals are looking at a 50.7 percent increase.

Things are even more dramatic for residents of two of the world’s biggest economies, as damage to the Russian and Brazilian currencies has made housing prices in the United States jump by 145.7 and 118.7 percent, respectively.

Not all news is bad for all foreigners however. The Chinese yuan has lost only 1 percent of its value over the past three years, basically making property price increases similar to the flat 24.7 percent experienced by Americans. That rise won’t dissuade Chinese business interests, who look to transfer cash to the United States, where their government—more hands-on with private property—can’t confiscate it.

Don’t give up hope on foreign buyers yet, realtors. Chinese customers will continue to increase, even with recent rate rises.