If you’ve been following economic news lately, you may have noticed that the US dollar has been on a downward trend—reaching levels we haven’t seen since before the pandemic. While this might not grab headlines like rising mortgage rates, it’s a major shift that could significantly impact real estate investors and the broader housing market.

In this piece, we’ll explore what a weaker dollar means, why it’s happening now, and how it could shape property prices, inflation, interest rates, and even foreign investment in US real estate.

Understanding the Value of the Dollar

To understand the impact, you first need to grasp how currency values work. The US dollar is traded on global currency markets, meaning its value is determined by supply and demand, much like stocks or real estate.

• When global investors want more US dollars—to buy bonds, invest in US markets, or deposit funds in American banks—the dollar gains value.
• When demand falls, the dollar weakens, making it less valuable compared to other currencies like the Euro or the Japanese Yen.

So what influences demand for US dollars?

1. Interest Rates:
Higher interest rates in the US attract foreign capital. For example, if interest rates are 5% in the US but only 2% in Europe, investors may prefer to invest in US-based assets. But if expectations shift and investors believe rates may drop, demand for the dollar can fall.

2. Inflation:
When inflation is low, the dollar retains more of its purchasing power, making it more attractive to investors. High inflation, however, erodes this value and can trigger a decline in demand.

3. Economic Performance:
A strong and growing US economy boosts investor confidence, which supports the dollar. Slower growth, rising debt, or unpredictable fiscal policy can make investors nervous and push them toward other markets.

Other factors like trade balances, geopolitical stability, and investor sentiment also influence currency movements. The bottom line: the dollar’s value reflects global confidence in the US economy.

Why the Dollar Is Dropping Now

Recently, the dollar has seen its worst performance in the first half of the year since 1973. While it’s still relatively strong, this weakening trend matters—especially for real estate investors. So, what’s driving the change?

• Shifting Interest Rate Expectations:
  After several years of high interest rates, many now expect the Federal Reserve to begin lowering rates. Lower returns in the US could drive investors to seek better opportunities elsewhere, reducing demand for the dollar.
• Policy Uncertainty and Debt Concerns:
  Volatile fiscal policies and the growing national debt are making some investors wary. A heavier debt burden raises the risk of future inflation if the US needs to print more money.
• Global Trade Tensions:
  Proposals like new tariffs on imports may slow growth, affecting investor sentiment and reducing confidence in the dollar.
• Stronger Global Competitors:
  The dollar’s decline isn’t just about US weakness—other economies are improving, drawing capital away from American markets.
• Reversal of Safe-Haven Flows:
  During global uncertainty, the US dollar is often seen as a “safe haven.” But as the fear of a global recession fades, some investors are turning to emerging markets for higher returns.

How a Weaker Dollar Affects Real Estate

A weaker dollar can influence real estate in three main ways:

1. Inflation and Home Prices

A declining dollar makes imported goods more expensive. That means construction materials like steel, timber, or tiles sourced from abroad will cost more in dollar terms—even if their original price hasn’t changed. These higher import costs can ripple through the economy and cause general inflation.

For real estate, inflation has a mixed impact:

• Positive: Property values often rise with inflation, which can benefit homeowners and investors, especially those using fixed-rate debt.
• Negative: Operating costs—maintenance, property taxes, and insurance—are likely to rise too, which can eat into profits.

Inflation also makes new development more expensive, potentially slowing housing supply and pushing up prices for existing homes.

2. Interest Rates and Mortgage Costs

To combat inflation, the Fed may raise interest rates. Even if rates stay flat, lower foreign demand for US bonds can still cause long-term interest rates (like mortgage rates) to rise.

Higher mortgage rates:

• Reduce buyer affordability
• Cool down demand
• Potentially slow home price growth

However, for current owners with fixed-rate loans, rising rates won’t change their payments—another reason why locking in low or moderate rates today could be a strategic move.

3. Foreign Investment in US Real Estate

When the dollar is weak, US real estate becomes relatively cheaper for foreign investors. While international buyers make up a small slice of the market (1–2%), their impact is more noticeable in major cities like New York, Los Angeles, and Miami.

Foreign institutional investors—such as pension funds and sovereign wealth funds—may take advantage of the weaker dollar to increase their holdings in US commercial real estate, including office buildings, hotels, and multifamily housing.

Smaller residential markets probably won’t see much foreign influence, but the commercial sector might.

The Trade-Offs: Strong Dollar vs. Weak Dollar

There’s no universal “best” when it comes to dollar strength. Each situation has benefits and drawbacks:

Strong Dollar Benefits:

• Cheaper imports (materials, goods, fuel)
• Lower inflation
• More purchasing power abroad
• Long-term borrowing stability

Strong Dollar Downsides:

• Makes US exports more expensive overseas
• Reduces demand for American goods
• Hurts manufacturing and export-driven industries

Weak Dollar Benefits:

• Boosts exports and US manufacturing
• Attracts foreign real estate investment
• May increase property values in some areas

Weak Dollar Downsides:

• Higher import costs and inflation
• Increased construction and maintenance expenses
• Potential rise in mortgage rates

Final Thoughts: How Should Investors Respond?

So what’s the takeaway for investors? The dollar’s recent dip may not spell doom, but it does signal that economic conditions are shifting. Whether you’re buying, selling, or holding, now is the time to pay attention to the macroeconomic environment.

Personally, I’m focusing on investments that use fixed-rate debt—especially in the small multifamily space (2–4 units). While rates might drop in the near term, there’s also a chance they rise long-term due to inflation or global economic pressures.

Rather than banking on a return to the ultra-low rates of 2020–2021 (which were historically rare), it’s safer to assume we may not see those conditions again soon.

In summary:

• A weaker dollar can drive inflation and influence property values.
• It may lead to higher mortgage rates over time.
• Foreign investment could rise, especially in commercial real estate.
• Investors should weigh the long-term implications—not just current mortgage rates.

By staying informed and understanding these trends, you’ll be better equipped to make smart real estate decisions in an increasingly complex economic environment.