With the dollar getting weaker and that factor playing a more significant and more significant role in our national economy and the local real estate market, now seems like a good time to look at the role the low dollar plays in our economy and the real estate market in general.
One thing is not debatable: The weak dollar plays an extraordinarily stimulative role in the New York City real estate market. While it will have little to no positive effect on most markets across the country, those places in which foreigners – especially those holding euros and pounds – would think of buying a home enjoy a considerable benefit to their local markets. A ten percent reduction in the value of the dollar vis-a-vis the price of a euro is a ten percent reduction in home prices in the US, simple as that.
Similarly, the low dollar attracts those visiting the states for the short term, as well. As anyone who’s been to Paris lately knows, things are expensive in Europe and cheap in the states, thanks mainly to the change in the value of the two currencies.
Not only does it attract tourists to the area, but it also attracts tourists who come for the sole purpose of shopping. Few things provide a more powerful stimulus for the economy, especially in areas like New York City that enjoy high rates of tourism.
Indeed, tourists spend so much money here that the low dollar has been a significant reason for the strength of the local economy, even in the face of major turmoil in the financial markets.
Throughout the country, though, the low dollar has the powerful effect of giving our exporters a substantial competitive advantage over foreign competitors. Similarly, domestic producers enjoy an edge over importers.
The only real drawback – other than making it tough on Americans visiting foreign lands – is the increase in the cost of imported goods. Thank goodness for Napa Valley, because if we still had to buy French wine, we’d all be a lot poorer these days.
This fact is particularly stark in these days of heightened oil costs. As the price of oil purchased in US dollars goes up, its already large share of builders’ expenses – and the costs of those that build what builders build with – goes up.
This long-term inflationary push is undoubtedly a significant drag on our nation’s economy. However, the stimulative qualities of a low dollar are generally thought by most serious economists to far outweigh the negatives. That being said, the benefits are concentrated in areas that either export many products or see much international attention.
New York City – especially its real estate market – has a lot for which to thank the low dollar.