2009 was the year we welcomed Canadians back to the Phoenix real estate market. Okay, so to some degree our friends from north of the border never left but as the Canadian dollar fell to 78 and 79 cents compared to an American dollar interest logically fell.
The following chart shows you the rise, fall and rise of the loony against the U.S. dollar (it’s a USD/CAD chart, so you’re looking at the opposite – the fall, rise and fall of the U.S. dollar but the other way just sounds less depressing when you have greenbacks in your pocket.)
The Canadian dollar’s strongest moments actually are to the left of this chart when the U.S. dollar was trading around 92 to 93 cents for one Canadian dollar. It lasted for about a week or so, but you can see the CAD held close to par until September 2008.
If you recall from those pleasant days at the gas pump, that was the time when oil prices were falling off the map and a gallon of unleaded would cost you about $1.40 (compared to the $2.45 I paid this morning.) Falling oil prices submarined the Canadian dollar and it fell quickly until it was worth about 78 cents of an American dollar.
Back to this time period in a minute.
This past year, especially the past two quarters, has seen the Canadian dollar bouncing between around $1.03 and $1.12 American. There’s still a substantial number of experts predicting the Canadian dollar will go back to par and beyond, maybe even reaching those halcyon days of $1.10 American to a loony. Or so many of my Canadian clients tell me.
I’m not a member of that camp if only because 40 years of history says a couple-week blip looks like an anomaly more than a trend. Maybe I’ll turn out to be wrong and if I am, it certainly won’t be the first time.
In any event, the rise of the Canadian dollar has brought many folks back across the border. Some have purchased, others jumped off the fence only to jump right back on in hopes of an even stronger loony. If it happens, great. If it doesn’t, they’re hooped and can keep paying exorbitant rates for winter rentals instead of collecting those rates if they so chose. And hey, there’s always the minus-46 Celisus weather to enjoy when our cold snap here has left us at a chilly 56 above Fahrenheit.
All weather-related joking aside, the collective Canadian buyer remains one of the most simultaneously misunderstood and overrated buying segments we’ve seen.
Before the letters start flooding in, when I say overrated I mean many sellers still put their eggs in the Canadian buyer basket without regard for whether their particular property would have any interest for your average foreign buyer. It’s like the Super Bowl from a couple of years back when sellers were putting their rundown 800-square foot, 2-bedroom condos on the market for $2,000 a week and expecting a corporate executive to flop happily on a futon. Wasn’t going to happen.
Three years of experience with Canadian clients has proven that not all properties are going to be considered. There are some on the lower end of the price scale that may appeal to investors looking for year-round renters. But for those looking either for vacation rentals or winter homes, there needs to be something extra – a view, upgrades, amenities, whatever.
Think about it. If you go on vacation and rent a house, you’re probably not going to rent a tract home buried in the middle of a basic subdivision. Not gonna happen.
As for being misunderstood … it took me a transaction or two to figure out that I didn’t know as much about the quirks of Canadians buying locally that I thought I did. Luckily, all turned out well and that was about a dozen transactions ago.
Now when someone asks about the tax ramifications of a purchase for themselves or as an investment, I can give some fair warning even while referring them to a tax professional I trust for further assistance. If someone’s thinking about exchanging their money at the local bank, I can pass them to folks who’ll save them four figures in most cases.
It’s taken three years of solid work and constant networking but I’ve got a full system in place specifically built to help Canadian buyers.
Moving on … or really back.
When the Canadian dollar was about 78 cents I had a client debating whether to purchase. The loony had gone south to the tune of about eight cents since they first found the condo they wanted and was now at such a low point that a purchase seemed iffy. What they needed to move forward, I was told, was 81 cents.
I told them to hang in for an extra three days on the inspection period. What goes down often comes up and if the CAD could fall that quickly, it easily could make up three cents in a couple days’ time. And so it did, with room to spare.
And the moral of the story is this, and it’s one I’ve said countless times over the past three years. The biggest risk Canadian buyers face is currency risk. Not local market values. Not the influx of bank owned homes once upon a time. Even in a declining real estate market, we’re not seeing swings of a couple percentage points on a daily basis. But that’s happening relatively often in the currency markets.
If you’re purchasing in a declining area, it’s possible the sales price will be lower at a later point in time. But it’s also possible the U.S. dollar could find its feet enough to push back against the loony, rise in value and increase a Canadian buyer’s bottom line.
Some things hold just as true in 2009 as they did in 2007 when the Canadian real estate invasion first got underway.
[tags]Phoenix real estate[/tags]