Declining oil prices: boon or bane for real estate?
Most Americans are thrilled by the 50 percent reduction in prices at the gas pump. The strong U.S. dollar also helps our purchasing power for products manufactured outside the U.S. The real question is to what extent these shifts will positively or negatively affect the real estate industry.
No matter how the real estate or the overall financial market changes, there are always winners and losers. In terms of the current downturn in oil prices and the surge in the U.S. dollar, the short-term impact for most agents will probably be positive.
1. The historical upside
According to a recent Bloomberg Business article, “U.S. food retailers, pharmaceutical companies, makers of construction materials, banks and insurance companies have typically performed best in times of dollar strength.” Consequently, these sectors should be prime growth areas in 2015. This growth should increase sales wherever these companies have a strong presence.
2. A boon for Gen Y buyers
For Gen Yers, lower gas prices means they have extra cash to pay down their student loans. With their student loans paid off, they can begin saving for their down payment on their first home. Repaying their student loans also means that it will be easier for them to qualify for a mortgage.
As Gen Yers enter their prime child bearing years, family is a prime focus. As realtor.com Chief Economist Jonathan Smoke put it, “Baby needs her own room.” 2015 will be a great time to prospect for first-time buyers in high-end rentals as well as Gen Y couples living in condos who may be starting a family soon.
3. More opportunity for mom-and-pop investors
As the institutional investors started to move out of the market in 2014, more mom-and-pop investors have begun to buy investment properties. Many baby boomers are choosing to buy a condo for their college-age child rather than paying dorm costs. Others see investment property as a way to create a consistent cash flow for their retirement.
The challenge over the last few years has been that foreign investors were snapping up many of these properties. The rise of the dollar has just made it much more expensive for these investors to purchase here. This should open the door for more American mom-and-pop investors to purchase.
4. Time for a European vacation or that Beemer you’ve always wanted?
The dollar’s rise against other currencies makes both travel and products manufactured outside the U.S. less expensive. To illustrate this point, the euro recently hit an 11-year low against the dollar. The drop in the euro means not only are European vacations going to be cheaper in 2015, so will buying that European luxury car. If you’re thinking about purchasing any type of product manufactured in Europe, the strong dollar means you have more buying power than you have had for many years.
5. A more generous mileage deduction
Have you been taking the actual costs of operating your vehicle or have you been taking the standard IRS mileage deduction? In 2015, it may be smarter to take the 2015 mileage deduction as opposed to the actual costs of operation. The IRS set the mileage deduction this year at 57.5 cents per mile. This was based upon $4 per gallon gas prices. At tax time, check with your tax professional about which option is best for your bottom line.
6. The downside: foreign investment
Cash-laden foreign buyers from China, Russia and the Middle East have repeatedly shut out many Americans buyers who needed a mortgage to purchase. There has also been a substantial influx of South American cash into areas such as Miami. These purchasers have been a driving force in the luxury market boom. Their influence, however, touches every price point and most locations across the U.S.
The collapse of oil prices has already begun to hit the luxury market, as a recent Bloomberg headline summed up: “Manhattan condos sit on market while foreign buyers wait.” The collapse of oil has also hit the trophy property market where Russian and Middle Eastern buyers have been major players.
The opportunity for agents here is to prospect your past foreign clients. For example, the collapse of oil prices and the skyrocketing inflation in Brazil and Venezuela have resulted in nationals from these countries canceling their contracts to buy new construction in Florida. If you have represented people from these countries in the past, they may need to liquidate their current holdings to keep their business or families afloat back home.
7. The double whammy for luxury
Because of the high demand, many high-end markets have experienced a building boom. This translates into too much supply resulting in declining demand. It appears that 2015 could mark the beginning of the next glut of luxury construction, even in high-demand areas such as Manhattan and Beverly Hills.
It looks as if a strong dollar and low prices will be with us awhile. Enjoy the lower energy prices and capitalize on the shifts to grow your business this year.
Bernice Ross, CEO of RealEstateCoach.com, is a national speaker, author and trainer with over 1,000 published articles and two best-selling real estate books. Discover why leading Realtor associations and companies have chosen Bernice’s new and experienced real estate sales training for their agents at www.RealEstateCoach.com/AgentTraining and www.RealEstateCoach.com/newagent.
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