Since the dollar has fallen drastically against the euro, more and more foreign investors are seeking to acquire real estate in the US. New York City is booming and is now considered one of the top real estate markets in the world. Even California, where the real estate market has recently taken big hits, is attracting the attention of foreign investors, particularly from Asia and Southeast Asia as foreign investors are able to acquire properties with at least a 15 to 20 percent exchange advantage.

International corporations that send employees stateside for business are investing money in real estate. While they used to have their constituents stay in hotels and rental apartments, they are now opting to buy property instead. It saves them money in their travel budgets and is a favorable investment because of the relative purchasing power of their currencies.

While the US dollar has been on a constant decline in value versus the other major world currencies, the most recent slump in the dollar’s value and surge in the euro were punctuated by an acknowledgment that a major US banker, Bear Stearns Companies, was in dire financial straits.

Bear Stearns had been one of the largest global investment banks and securities trading and brokerage firms in the world until an acquisition in March by JP Morgan Chase. On March 14 an announcement that the firm had required emergency financing from the Federal Reserve Bank of New York to avoid insolvency (when assets are outpaced by liability) led to a precipitous decline in the stock value of the company. This announcement triggered a 47 percent drop in the bank’s value. Over the following weekend, JP Morgan Chase agreed to acquire Bear Stearns in a stock swap worth $236 million ($2 per share) using stock prices from March 17.

Additionally, the Fed continues to lower interest rates. Lower interest rates can jump-start a nation’s economy, but they can also weigh on its currency as traders transfer funds to countries where they can earn higher returns.

What does all this mean to local real estate owners and investors? A weaker US dollar means that the equity that every single homeowner has in his home is worth less per every dollar he has paid toward his principle, the amount of money that has been paid back on his original mortgage amount.

Locally, real estate markets have been in the process of correcting as prices have been falling to more “normal” levels, down from the all-time historical highs we’ve recently experienced. Lower prices, coupled with the lower value of the dollar, mean our homes are worth less than they were even two to three years ago. There have been continued convergences
of market conditions that point to a
growing buying opportunity. If you bought a home in the past three or so years, you should plan on staying put in order to maximize the return on your investment. The economy is cyclical; our current real estate market is probably approaching, if it hasn’t already hit, the low end of this cycle.

If you are considering buying a home for the first time and plan to live in it for a considerable period of time, then consider buying in the next 12 to 24 months. Why? There have been continued convergences of market conditions that point to a growing buying opportunity.

Interest rates are still at an all- time low, which means that if you qualify you can lock in a mortgage rate at continued historic lows. Since inventory levels of homes have risen, the real estate market has turned into more of a buyer’s market, and there are opportunities to be had in our local real estate markets. The dollar is weak internationally, and real estate prices over the long term are subject to the effects of inflation.

Through recent actions, the Fed is making it clear that it is more concerned with appeasing the market and limiting recession fears than controlling inflation. With the continued interest rate cuts, we can certainly expect inflation to rise in the near future.

There is good news in this generally negative economic climate. Loans that have little risk, such as conventional real estate loans, should continue to get funded in areas where real estate values are more insulated. The Northeast is one of those regions, where home values have lost less than the majority of the country.

The main thing to watch for with those loans is that traditional 30-year mortgages could see rates go up. Even though the Fed is lowering rates, the rates on long-term mortgages can still go up because they are tied to bonds. Since these are long-term bonds, inflation rates are more important than short-term Fed interest rates, and inflationary pressure will begin to rise when the Fed drops interest rates this quickly. If you’re a qualified buyer with good credit and money to put down, you should capitalize on the current rates before they go up.

Not only are international businesses investing in US real estate, but well-qualified investors are also flooding the market, as now is a perfect opportunity to buy at recent lows. Keep in mind, the golden rule of investing is “buy low and sell high,” and prices are certainly lower as a function of the business cycle.

With the sub-prime meltdown, most lenders have been tightening their belts and have become stricter in their lending practices. “No money down” and “no income verification” have become a thing of the past.

This isn’t necessarily a bad thing. It ensures that buyers from this point forward will be able to afford their mortgages. It will also serve to stem the number of foreclosure properties flooding the market, which subsequently reduces the market value of all homes. This bolsters the market’s correction and the value of everyone’s homes, as market offerings start to decline in numbers.

Banks have been hesitant to lend money in an attempt to stabilize their assets. The Fed has countered with several measures intended to encourage banks to resume lending. We should see the results of these actions in the upcoming months. Furthermore, with the spring season upon us, potential home buyers will start to come out of the woodwork to take advantage of the lower home prices. The caveat is that buyers will need low income-to-debt ratios and money to put down to qualify for the most attractive rates.