An orgiastic day for a Portland realtor starts with seeing BC license plates outside the window. In the last year the number of house-horny Lower Mainlanders snapping up Oregon properties has apparently doubled. Egged on by a strong loonie and flagging American prices, Canadians have been pouring across the border to vultch.
Of course, when you come from a city where the average property costs $756,000 and a SFH goes for a million, Portland looks yummy. The average house there sells for $268,200, which is 27% cheaper than it went for in 2007. Hell, Yankee realtor guy, we’ll take four!
As you may know, this experience is being repeated in a bunch of places. The most popular states for bottom-feeding Canucks are California, Arizona, Florida and Texas – all places where the 2001-2006 real estate bubble blew hard and big. The latest evidence shows Canadians are buying the crap most Americans don’t want – beater single-family homes costing less than $100,000. The majority say they intend using these places as primary residences, instead of renting them out, for example, to gain some income while they wait for the real estate market to rebound.
So, good idea?
On one hand, absolutely. In the past half-century there’s been exactly one occasion when US houses cost half the Canadian average and when the loonie could be swapped at par. That’s now. This has never happened before and a decade hence we’ll be amazed it ever did. Without a doubt, an opportunity to buy low. Americans are sour on real estate after it took a honking big bite out of their net worth, and happy to give their houses away. In fact, 13% of all the homes in America are currently empty.
I’ve told you for the past couple of years how real estate values in the frosty north have only one way to go. Logic, experience and financial acumen lead us to the same conclusion: sell Canada and buy America. New buyers here are being set up for losses. New buyers there, for capital gains.
But there’s always a but. This might not be right for you.
The biggest unknown is how long you need to hold a US property to reap your inevitable gain. Currently, things don’t look great. The latest S&P/Case-Shiller report shows still-falling prices in 19 of the 20 cities tracked. For example prices in Atlanta and Vegas have just hit the lowest point since this mess began. Valuations are back to 2000 levels in many places. Sales are flailing around at numbers not seen for three years, while deals for new homes are the fewest in recorded history.
The real news is nobody expects this to get better for a few years. Millions of new bank-owned houses are about to come on to the market, and a new wave of foreclosures is imminent. This follows a year-long respite while banks were investigated for robo-signing documents that kicked people like you out of their homes without due process.
But whadda we care? We’re northern birds of prey.
Some economists who seem smart estimate prices won’t recover to pre-bubble levels until the early 2020s. After all, it’ll take years yet to find jobs for the millions thrown out of work in the financial crisis, for credit to be extended more widely and all-important consumer confidence to return. Remember, even the lowest mortgage rates in memory have done zip to revive US housing. And this is a country where people can write off mortgage interest and property taxes from their incomes. Still prices drop – down 15% in a single year in Arizona, for example, where there’s a ten-year supply of vacant houses.
So, if you don’t have a decade to wait around, don’t buy.
Other things to worry about include money. Yes, houses are cheap, but you’ll need cash to close the sale and get the best deal. US banks are not hot on Canadian borrowers, which is why so many people are taking equity out of their inflated northern digs to acquire a southern home. That’ll be a gas when house prices here decline. And try convincing CRA you should be able to deduct the interest.
In fact, it’s this non-access to US mortgage money which has so many Canadians buying trash properties. Big mistake. Like acquiring a cheap $85,000 condo in a Florida building which is 60% empty. Imagine how much fun it will be paying the condo fees for all those vacant units!
Things are still worth what they’re worth. Even in the USA.
And watch the tax thing, too. You can’t rent out a house without filing with the IRS. You’ll be subject to withholding tax when you sell, sometimes at both the federal and state levels. You can’t overstay your time down south without risking full tax treatment on global income (including Canada). And now, thanks to Ottawa’s new agreement, every border crossing will be recorded by both countries. Just think where that’s leading us.
Finally, if you still want to buy and hold, get a local agent, a local lawyer and buy title insurance. Unless you understand foreclosures, short sales, points and titling, budget for good help.
The bottom line is that this is a once-only window on America. But it’s not a short-term play, not as cheap or easy as it looks, and laced with considerable risk. If you just want a place to hang out for the winter, rent it. If you think you’re not a mark, think again. If you’ve never wondered why Floridians or Arizonians aren’t buying up unwanted houses, do it now.
But if you yearn for a land where real estate agents pee their drawers a little when they see you, it’s heaven.