If owning U.S. real estate was ever on your wish list, three years ago would have been the ideal time to do something about it.
The loonie was valued near and even above the U.S. dollar, interest rates were at historic lows and the U.S. real estate market was still in a deep trough.
“A lot of Canadians took advantage of that perfect storm. Those who waited said ‘I should have’…”, said Alain Forget, a transplanted Quebecer now based in Florida, where he serves as director of sales and business development for Royal Bank’s U.S. arm, RBC Bank.
A rebound in U.S. housing values and the worst currency exchange rate in 11 years have made buys south of the border significantly more expensive for Canadians, and their real-estate spending in the U.S. did indeed slip to $11.2 billion in the 12 months ended in March from $13.8 billion the previous year, but Forget says there’s still a lot of interest — with reason.
Compared with the per-square-foot cost of new condos in cities like Toronto and Montreal, much of Florida is still relatively affordable, he noted during a recent visit to Montreal. “And prices in most markets still haven’t returned to what they were in 2008.”
In a mid-to-high-end market like Palm Beach County, near Fort Lauderdale, the cost of an average single-family home now is about $400,000 (U.S.), up from $315,000 in 2012 but still well off the $620,000 peak in 2008, Forget said.
“Don’t forget, in some areas, prices fell 50-60 per cent in a year. It was a free fall,” said Forget, who obtained a Florida real-estate licence to enhance his knowledge of the market.
Even at today’s punitive exchange rate of more than 30 per cent, a Canadian buyer could be paying less now than seven years ago, Forget said. And they don’t have to take the full currency hit at purchase time if they take out a sizeable mortgage. If the Canadian dollar strengthens in the coming years, the monthly Mortgage payment will translate into fewer loonies. Interest rates also remain at historic lows, although maybe not for that much longer.
The market’s become trickier, though, because the average time to sell a home in Palm Beach County has dropped to 40 days, compared with five months at the time of peak prices, Forget said. Americans squeezed out of the market when the bubble burst have rebuilt their credit and are buying again.
“It’s more of a sellers’ than buyers’ market,” Forget said. “Inventory’s down, demand is up and so are prices.”
Canadians interested in a property also risk seeing it sold before they can straighten out their financing, a more complicated and time-consuming process in the U.S. than they’re accustomed to at home.
That’s why it can be helpful dealing with a Canadian bank that has U.S. operations, since your banking and credit history in Canada can speed up the process and get you pre-approved for U.S. purchases, Forget said. You may also avoid the “foreign national premium” that U.S. lenders typically add to mortgage rates for outsiders, if they lend to them at all.
While the dream of a winter haven remains strong for many Canadians, it’s something that requires reflection and planning, Forget said. Unhappy surprises may await the unwary, because of differences in the U.S. and Canadian tax and legal systems.
Renting out a U.S. property means U.S.-generated income and the need to file an American tax return, he noted. Adding family members to the ownership of a property can lead to gift taxes or complications in case of marital breakdown. Money is withheld when foreigners sell property above a certain value to ensure their tax status is in order, and if you die as a property owner in Florida with only an outside will, significant probate charges may ensue.
“Before doing anything,” Forget said, “seek advice from professionals knowledgeable of the cross-border issues. Otherwise, you could be hit hard by things you didn’t even know existed.”