Will a weaker dollar bring foreign buyers back to New York real estate?

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Last month, the Federal Reserve took the first step toward “the new normal” by cutting its target rate by 50 basis points, to 4.75%-5.0%, in what analysts believe to be the first of several downward adjustments (US News, 2024). This rate cut comes as a relief to the US real estate industry, where more than two years of mortgage rates at over 5%— and at times as high as 7.5%— have led to a decrease in both supply and demand. But what will lower US interest rates mean for the value of the dollar, and ultimately, will it make the New York City residential real estate market more attractive to foreign investors, as an investment class as a whole?

In general, higher interest rates in the US mean more money flooding into the country, which pushes the value of the dollar upward. (The Real Deal, 2016). Conversely, when US interest rates trend downward, the demand for dollar-denominated fixed income assets diminishes, and the dollar’s exchange rate loses terrain to other major currencies like the euro. If the dollar depreciates sufficiently, foreign investors in US real estate could be poised to get more “bang for their buck” when buying— capitalizing on the ability to invest in larger properties (e.g., one bedroom vs. studio) or nicer properties (e.g., new development vs. resale).

Correlation between exchange rates and new development pricing

To demonstrate this correlation, we evaluated the price per ft2 of new development condominiums in Manhattan— a favorite among foreign investors due to impressive sales galleries and an extended sales cycle— and compared this data with the monthly exchange rate of the US dollar to the euro, Chinese yuan, Japanese yen, Brazilian real, and the Mexican peso.

The above graph depicts the price per ft2 of new developments in Manhattan in comparison with the USD exchange rates, along with the currencies associated with nationalities we encounter often in New York City real estate. First, the data shows that after the financial crisis, the US dollar appreciated significantly against most major international currencies. Second, after a steep ascent of ft2 prices between 2011 and 2015, Manhattan real estate values remained rather flat since 2016. In our own team’s experience, this coincides with the diminishing demand for New York City real estate we have seen from these countries since 2016, in which both price increases and less favorable exchange rates have made Manhattan real estate at least twice as expensive for foreign buyers, as compared to only a few years prior.

The NAR National Foreign Buyers Survey

Now let us compare our findings to the NAR 2024 Profile of International Transactions in US Residential Real Estate, representing information regarding REALTOR® transactions with international clients who purchased and/or sold US residential property from 2011 to 2024.

It is indeed clear that the highest volume, as well as the highest percentage of sales nationally occurred in the years between 2011 and 2018. Sales have been at much lower levels since the pandemic, having reached their lowest number within the last year, when interest rates and the value of the dollar were both at their highest. This correlation leads one to wonder— will we see foreign buyers return when rates are cut further and the dollar becomes more affordable to them?

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Filed under: Headlines by Wendy Jackson
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Will a weaker dollar bring foreign buyers back to New York real estate?

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