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08 December 2023

Buy now before the dollar beats you

By Graham Norwood


So we still don’t know for sure whether it will be Barak Obama or Hillary Clinton against John McCain in the United States presidential election in November. But whoever the candidates turn out to be, the real winner will be the dollar.

It will, I predict, enjoy a rally as the election nears and then – whoever wins – there will be a patriotic post-election ‘bounce’. That’s good for the US, of course, but it means property investors elsewhere have only a few months to take advantage of one of the world’s biggest bargains.

At first sight buying a property in the US right now seems a perverse thing to do. Re-possession notices are being served, whole streets of homes boarded up in some areas as owners fail to service mortgages, and no one rules out further problems as the sub-prime credit crunch bites across middle America.

But I have a hunch you will never, ever be able to buy US property at a better rate if what I’m hearing from residential realtors across the States is true. The reason is simple – prices are low anyway because of the country’s real estate recession, and buying one is even cheaper for a short while thanks to that poor-performing dollar.

“Reductions of $100,000 are not uncommon and sometimes you’ll get $500,000 off a top-end home. A lot of people are waking up to the opportunities here. It’s an investor’s market,” explains Anthony Marguleas of LA Estate Homes in California.

“What makes Hawaii so attractive? Our home prices are down by about 34 per cent on the strongest years and the US dollar is down by about 23 per cent. In other words, if you compare relative prices of April 2004 and now, you’re looking at a discount of about 57 per cent,” says John Petrella of Local Hawaii Real Estate.

On the Mississippi coast – now designated as the post-Katrina Gulf Opportunity Zone or GO-Zone for short – there are vast numbers of new homes being marketed to investors worldwide.

“Clearly this is a location with a housing shortage, an ever-increasing demand for accommodation, increased employment opportunities, slowly growing local affluence and where house prices are particularly affordable,” explains Danny Silver of Property Direct America.

The National Association of Realtors says the number of homes sold in many parts of the US in the year to February 2008 is 30 per cent down on a year earlier. “It’s a buyer’s market. You can drive some good deals,” says a spokesman.

Although the commercial market is more complicated, and has seen very few defaults compared to its residential sister, it too has some deals on offer as a result of the sub-prime fall out.

For example a New York developer has defaulted on $760 million (Dh2.79 billion) in loans to build a $3bn Las Vegas complex of casinos, hotels, malls and apartments. The relatively favourable exchange rate means the most interested parties now in this deal come from outside the US.

Many analysts expect a repeat of this in the coming months, as many commercial deals in the past five years have been highly leveraged with interest-only loans, making them vulnerable if US interest rates shoot up again.

Normally those of us outside the US would never hear of these investment opportunities; they simply would be snapped up by domestic demand. But the credit crunch means Americans are sitting on their hands and wallets, obliging this historically inward-looking nation to appeal to investors around the world.

The favourable exchange rate makes this investment opportunity even more appealing – but only if you act before the presidential election. Why do I say that? Well as Bill Clinton would have commented, it’s the economy, stupid.

The US is unusually patriotic and, almost irrespective of the business logic, it invests in its own markets whenever possible. This is even more so at election time.

British business consultancy Capital Economics says over the past 110 years the Dow Jones Industrial Average has grown by an average of 9.1 per cent in election years against an average rise of 7.2 per cent in non-election years. And Standard & Poor’s 500 – an index of 500 mainly-US corporations – has risen by an average of 9.3 per cent in election years, against 6.5 per cent in non-election years.

Even when George W Bush was re-elected back in 2004 – at the height of unrest over the Iraq War and when there were already signs his second term would be hampered by major doubts over his ability and popularity – there was a Wall Street bounce and the dollar strengthened.

So whether you want that holiday home in Florida or that share in a Real Estate Investment Trust in Reno, now is the time to act – before the dollar beats you.

Graham Norwood is property correspondent of The Observer.
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