Look North To Canada!
When you think of international buyers, do you think of our neighbors to the north? You should—Canadians bought a whopping $9.4 billion of U.S. real estate last year. They make up the largest group of foreign buyers in the U.S. residential market, and they’re growing each year.
What’s driving growth? A number of factors have coalesced to make U.S. homes very attractive to Canadians:
The Canadian dollar is strong. The “loonie” has appreciated tremendously in the last decade. Whereas ten years ago it traded at about $.67USD to the Canadian dollar, recently it has been near parity and occasionally above the U.S. dollar.
Our homes are inexpensive compared to theirs. Currently, the national median price for a home in the U.S. is around $171,000, about half of Canada’s average price of $365,000. “Canadian banks didn’t loosen mortgage requirements as U.S. lenders did,” says Ray Levin of eXp Realty in Scottsdale, Arizona. “The market there didn’t experience a housing bubble. Instead, value increased incrementally, and hasn’t fallen sharply as it has here.” In fact, Canadian home prices are still appreciating, with the national average up 7.7 percent over last year.
ROI on property is higher here. It’s very hard for investors to find Canadian properties yielding high returns. On the other hand, the U.S. market, especially in vacation and retirement areas, has excess inventory that is priced 40 to 50 percent lower than it was five years ago. Canadians expect home prices here to bounce back over the long term, and see the dip as a great investment opportunity.
Canadians have strong asset positions. On average, Canadian homeowners have a 66 percent equity stake in their homes versus 45 percent in the U.S. Banks in Canada were still requiring down payments of 20 to 25 percent as our lenders began offering zero-down mortgages. Now, many Canadians have substantial equity positions against which they can borrow at low rates and invest elsewhere.
Not long ago, Canadian buyers tended to be retired snowbirds who stayed for the warm winters and rented out or closed up their houses the rest of the year. That’s not the case anymore. “It’s not just retirees who are interested in a home in the U.S.,” says Harry DeLeeuw, CCIM, CIPS, FRI, NAR President’s Liaison to Canada, and a Canadian REALTOR® with Shindico, a real estate investment brokerage in Winnipeg. He fields numerous inquiries about U.S. properties from Canadians with significant disposable income. “Many people in their 40s and even 30s with families are interested in investing in vacation homes that they can use part of the year and make available to friends and family at other times.” says DeLeeuw.
Investors are another big part of the invasion from the north. Many Canadians looking to diversify their portfolios buy one or more condos and hire local property management firms to rent and care for them year round. Parents of university students also view condos as a way to put their money to work for four years while saving on college housing costs.
Transferees and expats who move here for professional reasons are another piece of the Canadian buyer market. Though scattered throughout the U.S., they tend to be a tight-knit group, using social networking to share experiences and news of Canada.
Nine out of 10 Canadians buy with cash. “Many refinance or take an equity loan against their Canadian property. It’s the quickest way to raise funds,” says Ray Levin, of eXp Realty in Scottsdale, Arizona. “Keep in mind that a Canadian bank will not issue a mortgage on a U.S. property. It has to go through one of their U.S. branches.” Bank of Montreal, Toronto Dominion and HSBC now have branches in some major U.S. cities.
Levin says that some small local banks in the Sunbelt are lending to Canadian buyers. “For personal-use properties, they look for at least 30 percent down.” He advises that, on investment properties, buyers should expect to put 40 to 50 percent down. In both cases, banks will want to know that buyers have considerable reserves—three to six months for a second home, six to 12 months for investment property. Interest rates will be somewhat higher than what an American would receive, and will be slightly more favorable on vacation than investment properties. Overall, transaction fees for U.S. mortgages will be higher than what Canadians are used to.
Florida—fun in the sun
Florida has been a top destination for Canadian snowbirds and vacationers for decades. In fact, over three million Canadians (almost 10 percent of the country’s total population!) visited Florida last year. Many Boomers who vacationed in Florida as children have returned to buy property as adults. In 2010, Canadians bought about eight percent of the homes sold in the state. According to research from the National Association of REALTORS® (NAR), 57 percent of Canadian buyers in Florida bought condos, and another 32 percent bought detached single-family homes. Only 16 percent purchased properties purely for investment purposes. Over three in four bought property as vacation homes, and about a third of those might rent their property when they’re not using it.
Traditionally, Florida has drawn people from the East Canadian provinces, especially the cities of Toronto, Ottawa and Montreal. Top destinations are Tampa-St. Petersburg, Miami-Fort Lauderdale, and the Orlando region.
Arizona—up and coming
Arizona’s share of Canadian buyers has been growing as the state actively markets itself in major western cities like Vancouver, Winnipeg, and Calgary. The Phoenix/Scottsdale area is so popular that there are now over 80 flights daily between Phoenix and major cities in Canada.
Arizona promotes itself over Florida on two key points: equitable property taxes and lower homeowners insurance premiums. In Florida, out-of-state buyers pay property tax at rates higher than residents, and are also subject to larger annual increases in assessment. Homeowners insurance is less expensive in Arizona because of the low risk of catastrophic storm damage. Though the state typically attracts buyers from the Western Provinces, the number of buyers from the East is growing given the significant rise in hurricane activity and insurance premiums in recent years. Phoenix real estate is an especially good value to Western Canadian urban dwellers. In Vancouver, average home prices are roughly $780,000, making the median price of around $70,000 for a Phoenix condo look like a steal.
Investors are buying up Arizona condos, given that the market has dropped close to 50 percent since 2008. High-end luxury homes are in demand as well. In fact, Canadians in the last two years have accounted for about six percent of luxury home purchases there. For almost every week since the beginning of 2009, a Canadian buyer has purchased a home worth at least $1 million in Maricopa County, Arizona.
Not just the Sunbelt
Some other areas are surprising magnets for Canadians. Close to the border, Seattle and the Puget Sound regions harbor strong Canadian pockets. Northwest Montana, especially Flathead Valley, is known as a playground for Albertans, and is only four and a half hours from Calgary by car. Stowe and several ski areas in Vermont are popular with Canadians from the Eastern Provinces.
A little further south, Canadian investors are jumping on commercial properties in New York City, where they have purchased $2.02 billion of commercial property so far in 2011.
Warm weather destinations also include Palm Springs and Southern California, Las Vegas, and parts of Texas. Eastern states with close to one million Canadian visitors annually include Georgia, North Carolina, South Carolina and Virginia. Beyond the United States, Canadians are buying properties in Mexico and, in a recently growing trend, Costa Rica.
Expect more Canadians in the future
Though Canadians are already the largest foreign buyer of U.S. residential properties, their demand for warm-weather homes is expected to grow. With cash to spare and an eye toward bargains, they view the U.S. as a tremendous investment opportunity. Take advantage of this great niche market!
For almost every week since the beginning of 2009, a Canadian buyer has purchased a home worth at least $1 million in Maricopa County, Arizona.
Canadian investors have purchased $2.02 billion of commercial property in New York City so far in 2011.