Weak Dollar and Real Estate Prices
The weak dollar has made importing things more expensive in the US. Almost everything is imported in the US including basic building materials such as steel and cement. These things will put upward pressure on homes.
However, the upward pressure on houses will mostly effect new homes that are under construction. Existing homes are less likely to feel this price pressure.
With existing homes, a major factor that will offset any particular increases in price is the fact that the housing market is very weak right now.
Credit tightening has made it more difficult to get home loans to buy homes. Speculation has led to a very large number of houses on the market which has a downward effect on prices. Speculation has also eliminated many participants in the home market by either bankruptcy or over leveraged owners. These people will not be in the housing market for probably another 7 years or more. They have also stopped the misconception that houses will always go up in prices.
Trend following behavior has also stopped. People have little interest in buying homes when the prices are going down. The trend following behavior was to buy when prices were going up.
These factors will all put downward pressure on both new and existing homes. The profit margins of new homebuilders will get squeezed as material prices increase and the number of existing homes on the market remains high.
The weak dollar will attract foreigners such as Europeans to the US real estate market. Europeans have seen what has happened in the US real estate market, so the buying of US real estate will probably not be significant. And for those that want to buy real estate, they will face hurdles. It isn’t quick and easy as with stocks and bonds. Most likely some of the larger cities like NYC will be effected by foreign real estate buyers and LA but most of the smaller cities will be less effected.
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