As insulated Americans most of us don’t realize that the currency rates have a bigger impact on our local economy than we may know. Since the fourth quarter of last year the European currency, the Euro, has dropped about 30% in value compared to the US dollar, now sitting at about a 12 year low. This is great news for Americans thinking about a European vacation this summer, but not necessarily for the European looking to buy US products or buying US real estate. It’s like suddenly having a 30% price rise!
I haven’t seen much news coverage in the media yet, but I suspect there will be over the coming weeks as national statistics for the first quarter of 2015 start to get tallied up. The rise in the US dollar (and fall of the Euro) can also be linked to the dramatic fall in oil prices. While the much publicized oversupply of oil production coupled with lukewarm demand has impacted oil prices, the biggest factor is really the value of the dollar. The reason being is that oil is priced in US dollars on the worldwide market, so when the US dollar appreciates significantly like it has just done the price of oil drops commensurately.
The rise in the dollar relative to the Euro is impacted by many factors and is really no different than any other commodity in that it is subject to relative shifts in demand. The biggest factor is the differential between US interest rates and interest rates in other markets; they are highly correlated. Differentials in inflation rates between countries also are big factors in this mix. Central banks, like the FED, can manipulate interest rates thus exerting influence on inflation and currency rates. Political stability and economic performance are also big factors, especially at times of great uncertainty.
As a result of these big swings in international markets, SW Florida is likely to see a continued decline in European investment in our residential and commercial real estate markets.