Cheap dollar won’t revive NYC real estate market anytime soon

A weaker U.S. dollar likely won’t give Manhattan real estate its usual boost after the New York borough emerges from its COVID-19 lockdowns.

This means wealthy foreign buyers, who typically scoop up luxury Big Apple properties at a favorable rate, won’t be in the game this time around.

“New York has been one of the most challenged real estate markets, certainly in the country, if not the world,” Scott Crowe, chief investment strategist at CenterSquare Investment Management, an $11 billion real estate asset manager based in Plymouth, Penn tells FOX Business.

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Prices for residential and commercial listings in Manhattan, New York City’s most densely populated borough, have plunged about 10%, on average, since the outbreak of COVID-19 as New Yorkers have fled in droves amid a wave of crime that has engulfed the city. High street retail, meanwhile, has been hit even harder with prices down 20% to 30%.

WHEN FOREIGN BUYERS FLOCK TO NYC  

Foreign buyers, who typically emerge during periods of U.S. dollar weakness and make up about 15% of total demand in New York City, have yet to turn up to put a floor in prices much like they did in the greenback’s 17% peak to trough decline from February 2009 until August 2011.

That sharp drop in the dollar put U.S. assets on sale for the rest of the world, enticing buyers from Europe, China and South America.

This time around, however, the dollar hasn’t yet seen the type of decline that would bring foreign buyers into the market.

The greenback has slipped 1.82% year-to-date versus a basket of its peers after getting “thumped” in July and August as traders finally began pricing in the Federal Reserve's aggressive policies designed to steer the U.S. economy out of its sharpest slowdown of the post-World War II era, according to Marc Chandler, chief market strategist at the capital markets trading firm Bannockburn Global Forex.

CHINA, RUSSIA & THE MIDDLE EAST GETTING SQUEEZED 

Also, buyers from places like China, Russia and other oil-rich countries have other reasons to stay away.

Trade tensions between Washington and Beijing have cooled Chinese demand for U.S. assets and oil-rich countries including Russia have seen their currencies plunge in value as oil prices have cratered by more than one-third due to the sharp drop in demand caused by COVID-19.

Buyers from Europe aren’t yet seeing the fire-sale prices that would be gotten if their currencies were stronger. The British pound, which has been held up by Brexit negotiations, has gained 2.2% against the dollar this year while the euro is up 5.36%.

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But Chandler believes that regardless of who wins the 2020 election, the dollar is in the "early stages" of a long-term decline that will see it trend towards its 2008 low of 1.60 per euro.

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Near-zero rates and a weak dollar will help bring foreign buyers to Manhattan, but current uncertainty around immigration policy will cause some to stay away.

“With rates being low for a long period of time and the dollar expected to weaken, I do see an uptick, but maybe not the frenzy that we saw six or seven years ago,” said Jonathan Miller, CEO of the New York-based real estate appraisal and consulting firm Miller Samuel.

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Foreigners are thought of as being active in the high-end super-luxury market, but they are actually scattered throughout the different segments of the market. They prefer condos over coops, which require board approval and are players in the commercial space.

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Chandler, Crowe and Miller all agree that a COVID-19 vaccine that is widely adopted will go a long way to restoring order in the Manhattan market, although that might not happen until the middle of next year.

“The next call it nine months, create fantastic buying window for New York real estate,” Crowe said. “Assuming we get a vaccine distributed by June of next year, if you look into the second half of 2021, what you’ll have is a return to normalcy in terms of demand, low-interest rates, and a Fed that isn’t going to increase interest rates until 2023, you’ll have a low dollar and you'll have the ability for people to travel right.”