The Fed's Interest Rate Cut Cycle Arrives, What Does It Mean for Overseas Buyers?

Question

1.1 Why did the Federal Reserve start cutting interest rates?

AIAIGAnswer

Starting in September 2025, the Federal Reserve cut interest rates twice in a row, lowering the benchmark rate to 3.75%–4.00%.

- Background: U.S. inflation fell to 2.9%, economic growth slowed, and the job market cooled.
- Goal: Reduce financing costs and stimulate consumption and investment.
- Market impact: The U.S. dollar index weakened periodically, and global capital flowed back into assets such as real estate and stocks.

Not immediately.

- The 30-year U.S. mortgage rate remains around 6.2%.
- Reason: Long-term rates are influenced by bond yields and inflation expectations and do not move in sync with short-term rates.
- Prediction: Mortgage rates may slowly drop to around 6% over the next 1–2 years, but they will not return to the 3% level seen during the pandemic.

International capital's interest in U.S. real estate has increased.

- NAR data shows that foreign buyers' total purchases in the U.S. reached $56 billion in the 2024–2025 period, a 33% year-on-year increase.
- Largest buyers: From China, Canada, India, Mexico, etc.
- 56% of foreign buyers purchased with cash, indicating continued strong confidence in U.S. dollar assets.

- Reduced financing costs: Interest rates drop from 7% to around 6%, easing monthly payment pressure.
- Opportunities for refinancing: Buyers can refinance in the future when rates are low, lowering long-term costs.
- Overseas-specific loans (DSCR, non-resident loans) become more popular, with LTV up to 70%.

During a rate-cutting cycle combined with a weakening dollar, it means:

- Dollar asset prices become relatively more attractive.
- Foreign currency investors get a higher 'exchange rate discount' when purchasing U.S. real estate.
- Suitable for medium to long-term positioning: Lock in quality assets and wait for the refinancing cycle.

Short-term local increases:

- Rate cuts boost homebuying demand, especially in popular states like California, Florida, and Texas.
- Supply remains tight, making quality listings more competitive.

However, nationwide average increases are limited because mortgage rates are still high, preventing a widespread surge.

1. Cash buyers: Take advantage of the weakening dollar to purchase high-quality assets, focusing on core markets such as California and Florida.
2. Loan buyers: Enter the market now, and reduce costs through refinancing in the future.
3. Long-term investors: Prioritize properties with stable rents and strong liquidity to hedge against interest rate fluctuations.

- Core cities: Markets with concentrated foreign investment, such as California, New York, and Miami, Florida.
- Cash flow properties: Strong rental demand and stable returns.
- School district and tech hub cities: Strong value retention, suitable for long-term asset allocation.

The interest rate cut cycle will not immediately make houses cheaper, but it will bring:

- A more relaxed financing environment;
- Stronger attractiveness of dollar-denominated assets;
- Higher market competitiveness.

Summary: This is a shift from 'interest rate logic' back to 'asset safety logic'.

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