Canadian Buyers: Sitting on the Fence is Getting More Expensive

avatarthumbnail.jpgAt last month’s Inman Real Estate Connect Conference, the question arose … what do you see for the future when it comes to foreign buyers purchasing real estate in Phoenix, in Arizona or in the United States in general.

Paraphrasing myself (since I wasn’t taking exact notes of the discussion of which I was a participant), I said the window of opportunity for Canadians to purchase in Phoenix or elsewhere in the United States is a relatively narrow one, at least for those who are purchasing now only because of the exchange rate.

Nothing that has happened over the past month has disabused me of that notion. As I write this, the U.S. dollar is worth approximately $1.06 Canadian. Looking at this from a historical perspective, $1.06 is far better than the $1.18 we saw in spring 2007. It’s also quite a bit different than the 98 cents U.S. to the Canadian dollar from the fall of 2007.

We have not reached the end of the road of the near-parity days, at least not from the analysis I’ve been seeing. Says David Rodriguez, the quantitative analysis for DailyFX.com:

In the USDCAD, we actually see that our forex positioning measures show traders recently flipped to net-long the US dollar-a historically bearish signal for the currency pair. . . . If this continues, we could see the USDCAD fall in line with its seasonal trends and decline for the remainder of the month of August. This is consistent with our Senior Strategist’s bearish technical outlook for the US dollar against the Canadian dollar. 

Of course, some of what may happen depends on how you view the current movement. There are some factors which are being viewed as leading to a weaker Canadian dollar. Snow An at Globex pointed out …

The Canadian dollar is seen sort of as a “commodity currency” and weakening commodity prices have affected its strength.  Oil prices, which the Canadian dollar is traditionally linked to, is down over 20% since its June 11th high.

High commodity prices in the past have helped the CAD dollar as Canadian exports were taking a beating from the slowed US economy and the relatively weaker US dollar.

But is the Canadian dollar the catalyst behind the recent move? Possibly not. Movement in the U.S. dollar has been across the board … at $1.49 USD to a Euro, off highs closer to $1.60, for instance.

Moving Away From Speculation

Ultimately, it’s up to each buyer to decide what they feel the two dollars are going to do and how much that factors into their own decision to buy. I’m not here to say the rally is going to hold or fail … if my crystal ball worked that well, I would be on a beach and not in front of my computer screen.

What I can tell you, as I’ve said in the past, is the current movements likely will have a bigger hand in the cost of purchasing real estate in Phoenix than declining values.

On a $250,000 home, the move from $1.04 CAD-USD to $1.07 makes purchasing the same house $7,500 more expensive. Unless the property value dropped by the same 3 percent over the same couple of days, the move’s a net loss.

There are two basic solutions to avoid further currency risk … one, obviously, is to climb off the fence (assuming you find a suitable property) and make the purchase. For many that’s impractical, so I offer solution number two – Globex offers forward contracts that allow you to lock your exchange rate.

Let’s say you had locked that $250,000 Canadian at the $1.04 rate … that would be $7,500 (less the cost of the lock) that you would have saved by planning ahead.

If your timeframe is indefinite, the lock may not be suitable. But if you’re planning the purchase in the somewhat near term, the exchange rate lock might be worth the look.

[tags]Phoenix real estate, Canadian buyers Arizona real estate[/tags]

About Jonathan

Jonathan Dalton is a 30-plus-year resident of the Valley and has been helping folks buy and sell homes since 2004. He can be reached at 602-502-9693 or info at allphoenixrealestate.com.