A more valuable dollar will have a big impact on the housing market
The US Dollar Index has shown a surge in the dollar recently, to the tune of 4.5 percent since mid-April. Rising and falling in response to economic conditions and relative to the value of the currencies of its trading partner, the value of US dollar has a significant impact on the price of all goods in the economy, especially the housing market. Appreciation of the US dollar means that it is getting more valuable when compared with other currencies and that can have a direct effect on your pocketbook, and the amount of house you can buy.
Higher Interest Rates
The Federal Reserve is expected to raise interest rates at least two more times this year, and perhaps three more times in 2019. Raising interest rates could boost the value of the dollar even further and help stave off inflation.
Since mortgage rates are closely tied to interest rates, mortgage rates will rise in direct correlation to interest rates. Mortgage rates have been at historic lows for a number of years, and the market can support some increase in current rates. However, if rates increase too quickly or too high, potential homebuyers may be more reticent to purchase.
Meanwhile, rates will also have a significant effect on existing homeowners. With many homeowners purchasing while rates were at historic lows, these same owners may be less likely to sell in a market where selling their existing home means buying a new home with a higher mortgage rate.
Higher Purchase Prices
As the value of the dollar increases, the cost of goods will rise. While the effect on the price of lower priced goods is typically minimal, the increased costs of higher priced goods like real estate will definitely have an impact on potential homebuyers.
While the potential for a decreased demand in housing due to increasing interest rates would typically force prices lower, the historically low supply of housing will help counter this trend. Rising purchase prices coupled with increasing mortgage rates may mean that potential buyers’ dollars won’t buy as much house in 2018.
Higher mortgage rates may make selling less attractive to existing homeowners. Since rates have been at historic lows, many potential sellers have low fixed rate mortgages. This makes the possibility of a new mortgage with higher rates less appealing to sellers.
All of these compounding issues could only add to the already critical shortage of supply of real estate. The market will continue to see high prices, coupled with potentially increase shortages and higher mortgage rates.
A strong dollar is good for the American economy and could bring balance to a housing market that has been unabashedly tipped toward sellers. Homebuyers should continue to be mindful of potential changes in the market as they select their new home.
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EXIT Realty Bob Lamb & Associates is Murfreesboro’s most innovative real estate team.
EXIT Realty Bob Lamb & Associates
2630 Memorial Blvd, Murfreesboro, TN 37129