You’ve probably missed the bottom of the U.S. housing market, but the question for Canadians is whether it’s too late to jump in now.
Maybe it’s the strength of the loonie, the increasing value of their principal residences or the lure of still deeply discounted housing, but Canadians love the United States — especially the Sun Belt — where we remain the No. 1 foreign buyer of property.
Prices won’t likely go lower, says Beata Caranci, deputy chief economist at Toronto-Dominion Bank. However, based on the 5% year-over-year growth that the United States has seen in average property values, they’re not returning to 2006 levels anytime soon either.
“If you were trying to get in at the very bottom, you missed it,” Ms. Caranci says. “You are still pretty darn close to skimming the bottom, and the more you wait, you can expect about 5% price growth every year.”
If you were trying to get in at the very bottom, you missed it
Just to keep things in perspective, average prices in Florida remain about 50% off their peak. She says states such as Nevada and Arizona have worked through their foreclosures, thereby removing some of the best deals.
But even with the recovery, Ms. Caranci says it will take until 2017 for Americans to recover all the real estate wealth they lost in the housing crash — based on that 5% annual increase in property values.
“That’s 11 years. It’s very much like Canada. Remember we had our real estate bust in the 1980s and it took until 1995 until prices climbed again. It was a long and extended boom-bust cycle,” she says. “You are talking about a 10-year cycle.”
Canadian activity in the U.S. is impressive in its own right, but the transaction volume is hardly enough to be the only reason behind the modest turnaround in the moribund U.S. housing market.
The latest survey from the Washington-based National Association of Realtors showed foreigners purchased US$82.5-billion in residential real estate in the 12 months before March 12, 2012. It was a significant chunk of the US$928.2-billion in total activity for the period.
Foreign purchasing, led by Canadians’ 25% share, is clearly on the rise, having been only $66.4-billion a year earlier. And the top four destinations for foreigners are the warm-weather states of Florida, California, Arizona and Texas.
Richard Levert, a 57-year-old from Sudbury, Ont., in the recruitment business who has been vacationing in Naples, Fla. since 1991, is one of those who pulled the trigger on a recent deal by upgrading his vacation home.
He bought a two-bedroom, two-bathroom condo in the Naples-area in 1997, but this past June he decided to upgrade to a villa, which has about 2,000 square feet.
“I am above water [on the 1997 property],” says Mr. Levert, who is now selling that unit to pay for his new purchase. He looked around at the housing market and decided it was time to buy.
“I also have a piece of property [in nearby Cape Coral] I’ve never developed. It’s just a lot,” he says of the land purchased in 2005.
“It’s just an investment,” says Mr. Levert, “it hasn’t gone too well. That one I’m under water on.” But his confidence in the market was hardly shaken. His upgrade has given him an apartment on the inter-coastal waterway of Florida, second to the beach in terms of expense. Generally, the further inland, the cheaper it gets in the Sunshine State.
He’s not retired full-time yet but hopes to spend up to six months a year in Florida once he reaches 65.
So why now?
“I just think the price was right. How are we going to see better values?” says Mr. Levert, who had been looking at the same property for months before the owner finally agreed to his offer in the falling U.S. market. “To me, Naples is just paradise.”
The perceived value is what drove Ottawa resident Don Briscoe, a 67-year-old executive director of a not-for-profit security company that provides employment for military veterans, to close on a home in Sarasota, Fla. in October. He’s not fully retired, but says prices made him want to buy now.
“An opportunity just came up and it’s just such a good time. It’s not just the real estate; the exchange rate was a driver,” says Mr. Briscoe, adding it doesn’t hurt that his Ottawa home has risen sharply in value.
Canadians are helping things pick up in Florida, says Phil Wood, an agent with Naples-based John R. Wood Realtors, who has 35 years in the real estate business in southwest Florida.
“I have seen the ups and downs and everything in between. I feel like I’ve seen it all,” says Mr. Wood, whose region is filled with Canucks. “I’ve just seen a little more urgency in the last months with [Canadians]. They seem to realize that certain areas, like southwest Florida, prices are heading up. They want to buy sooner than later. We have clients who won’t use the property for 10 years but want to lock in at current price levels.”
But even he says you need a plan and not just some trophy asset you can brag about. He says the majority of his Canadian clients are buying a second vacation home that will be used on a more regular basis once retirement hits.
Meantime, renting the property is an option. November to April is prime time for renting, although many owners want to use their property for three or four weeks during that period.
Mr. Wood says a typical US$200,000 condominium — a 1,200-square-foot apartment with two bedrooms, two bathrooms “near the water but not on the water” — may cost between US$1,000 and US$1,200 per month to carry in maintenance, condo fee, tax and utilities costs.
That doesn’t include debt carrying costs. But Mr. Wood says about 90% of Canadians pay cash even though they can finance for up to 65% of a home’s value — albeit, such financing is hard to come by, according to most experts.
“They’re ripe,” he says of Canadian buyers. “Your economy is good, the exchange rate is good, mortgage rates are good, our prices are good. It’s just a great time to reach out.”
That US$200,000 apartment, Mr. Wood notes, would have been worth close to US$400,000 at the peak of the housing market.
Mike Belmont, president of Minto Communities LLC, which builds in Florida but is a well-known name in Canada, says it’s still a battle for builders to sell in a market loaded with foreclosures for sale. “There were a lot of homes on the market that quite frankly were a better deal than, say, a new home,” said Mr. Belmont. “You read a lot down here about the more affordable homes going to Canadians. What has been popular has been discounted condos on the beach that have gone into foreclosure.”
Asked if there is urgency to buy today — given parity of the dollar, low interest rates and depressed U.S. home prices — he points to the deals.
“Our price points today are where they were in 2003,” said Mr. Belmont. “It is a great time to buy. The discounts and some of the incentives we saw last year, those have stopped and we are seeing some price appreciation.”
Prices are up but you have to think about the context.
“Last year was horrendous,” says Mr. Belmont, noting that in his Sun City development in Tampa, homes sell for US$100 a square foot. Compare that to, say, $500 to $600 a square foot for a condo in Toronto.
“It’s a real bargain. You’re getting an 1,800-square-foot home with four recreation centres and six golf courses.”