Monday, January 24, 2005

Who's Propping up the US Housing Bubble?

It looks like the dollar's slide is being noticed not only by exporters, but by owners of US assets. Here is an example from Canada's National Post.

"The precarious combination of a weaker dollar and still low interest rates is making foreign investment in real estate a bargain," Laura Stone Mortimer, managing economist with U.S.-based Torto Wheaton, said in a research note.

She said total acquisitions by foreign investors were more than US$14-billion in 2004, up from $9.5-billion in 2003.

"German funds are the largest, most notable group of foreign investors currently active in U.S. commercial real estate," she said, adding players from the United Kingdom, Australia and other European countries were also entering the market.

The point is not that the dollar has weakened enough to make US assets attractive enough so that the current pace of current account deficit accumulation is sustainable, but rather that there are important stabilizers in place that make the dollar's slide a lot smoother than people think. While I agree that the dollar is a one-way street, those looking for an Argentine-style crash will be disappointed.


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