Blogs & Comment

Buy American

If you are Canadian, U.S. real estate is in the bargain bin even more than it is for U.S. citizens. Not only have prices for U.S. houses fallen 30% to 60% (depending on the city) from peak levels, but the Canadian dollar is strong and gaining on the U.S. dollar. Over the past six months or so, the currency-related gain in purchasing power is about 15% (with more to come, according to forecasters). In addition, Canadians can get credit more easily since their economy and banking system wasnt as devastated by the crisis/recession.
What also might tempt Canadians to venture into the U.S. with their walletsopen are signs that U.S. real estate is nearing a bottom. True, inventories of houses for sale remainhigh, but sales are rising and pricesare firming.
One risk is that the U.S. dollar spirals downward after buying a U.S. property. That could depreciate the value of U.S real estate holdings considerably in Canadian dollars. However, according to OECD estimates, Canadas purchasing power parity (PPP) with the U.S. is close to $0.82 (U.S.). The PPP is normally thought of as the equilibrium level toward which the Canadian dollar will tend to move over the long run. So, with todays exchange rates above the PPP, there is, in theory at least, some protection on the downside.
Another risk is that U.S. real estate prices may keep tumbling. Indeed, there are still a lot of foreclosures that need to be sold. On the other hand, affordability for U.S. homebuyers is at historically high levels. Plus, the cheapness of U.S. real estate to foreigners should stimulate demand through foreign buying. And any further decline in prices would presumably trigger additional policy responses along lines similar to the $8,000 tax credit now in place for U.S. citizens buying homes.
There are pitfalls in local markets to be aware of. For example, Florida taxes foreign owners of property at higher rates. And hurricane insurance can be expensive. So one needs to research the local market carefully, or find someone trustworthy to help out. For more details on the nitty gritty of local buying, see Julie Cazzins article on Canadian Business Online. Also, Ellen Roseman recently did a pieceon buying in Florida.