Rate Hikes May Hurt Foreign Buyers Most

December 29, 2015

The Federal Reserve's decision to gradually raise its short-term interest rates is expected to send mortgage rates higher in the new year and will likely have the biggest impact on foreign buyers from Western Europe and Canada, says Lawrence Yun, chief economist for the National Association of REALTORS®.

"The reason is [it] will make the U.S. dollar stronger," Yun writes in a column for Forbes.com. "That, in turn, will make it more costly to buy in America for foreigners. One major exception to this trend is likely to be Chinese buyers."

Higher interest rates lure foreign savings into the U.S., which strengthens the dollar, Yun adds.

For example, Canadian currency has gone down 33 percent in value against the U.S. dollar over the past three years. American properties have risen by 24.7 percent in the same period, which means Canadians need to factor in 33 percent more for the cost of a home after currency conversion. That brings the total cost change to 57.7 percent to purchase a home in the U.S., Yun notes. 

Similarly, the cost of a U.S. home purchase has more than doubled for Russian or Brazilian buyers after currency conversion. 

At Forbes.com, you'll find a chart that shows the change in currency for some of the biggest foreign buyers of U.S. real estate. 

Source: “Fed Rate Hikes Will Dampen Sales of U.S. Homes to International Buyers,” Forbes.com (Dec. 21, 2015)