Getting bang for our buck in US real estate
Investing our loonies in U.S. real estate is becoming a trend but buyers should proceed with caution.
Two weeks ago I wrote about how to profit from the strong loonie by buying US stocks through Exchange Traded Funds. But there is another way to take advantage of our currency strength while betting that the loonie will eventually sink to levels more consistent with the past 60 years. Real estate, south of the border, offers the potential for a nice bonus in the future assuming our currency declines against the greenback.
Stories about the real estate comeback across the border are starting to pop up, but the key statistic relates to momentum. For example, at the end of the second quarter (June) the US national real estate composite index was up 1.2 per cent compared to the same period in 2011. However, it was up nearly seven per cent over the first quarter of 2012. The same was true of two bellwether real estate indices, the S&P Case-Shiller 10 and 20 City Composites.
These stats signal momentum, which indicates that we're seeing a trend rather than an aberration.
"We seem to be witnessing exactly what we needed for a sustained recovery; monthly increases coupled with improving annual rates of change," noted David M. Blitzer, chairman of the Index Committee at the S&P Dow Jones Indices, in a report. "The market may have finally turned around."
However, before you race off to snap up property, pay attention to the outliers.
While prices in Phoenix are up nearly 14 per cent year over year as of the second quarter and even much battered Miami and Tampa have posted respectable gains of 4.4 and 3.4 per cent, there are still many regions across the southeast and southwest which are struggling.
The Wall Street Journal's Market Watch quotes statistics from Fiserv that the ten worst housing markets in the U.S. are showing little signs of recovery. In those markets prices have fallen 55 per cent or more from the peak of the housing bubble.
Digging deeper into the figures from the bubble years, those were also among the regions where house prices inflated the most. Other commonalities include current high unemployment and foreclosure rates. You'll also find that these cities have unstable or even bankrupt finances.
If you are interested in southern real estate consider keeping track of some of these lagging cities such as: The Inland Empire, Modesto, Merced, Stockton and Vellejo-Fairfield in California, the greater Las Vegas area and Lakeland-Winter Haven, Palm Coast, Palm Beach and Daytona Beach in Florida.
Bear in mind, however, that these cities and regions are bucking the firming real estate trend for a reason - they have significant economic problems that won't be improving any time soon. Also, in many cases these über-depressed markets have become visually quite dreary.
In Florida, for instance, you might find a great single family home with a nice view on a street with moldering trailers and abandoned homes falling into disrepair. The Inland Empire of California includes Riverside and San Bernardino. There, in addition to mile after mile of cookie cutter, suburban sprawl, there are many dilapidated neighbourhoods and ruined vistas that are not likely to change.
The lesson is this. Take great care in grabbing what seems like a steal just because the national stats are improving.
- Get to know the area. Drive, drive and drive some more. There can be surprises such as dry lakes, quarries, proposed landfill sites and boarded up towns close by which could depress the value of your purchase for a long time. Also, check on the number of foreclosures nearby. A cluster could signal problems such as flooding, sinkholes or proximity to wildfire areas.
- Buy where there's an attraction. In my case, I purchased a rural property an hour north of Tampa in an area that lures outdoor types with a myriad of golf courses, hundreds of thousands of acres for walking, hiking, biking and horseback riding with rivers and the Gulf of Mexico nearby for water sports.
- Start changing money and shop around for rates. Once you decide to buy in the US, start converting to greenbacks in large enough amounts to get the best possible deal. Currency swings can happen very quickly these days. Better to miss out on some gains than get caught having to convert the entire sum with a fast sliding loonie. You can park the money in a US dollar account and even get a smidge of interest.
MSN.ca Money's editorial goal is to provide a forum for personal finance and investment ideas. Our articles, columns, message board posts and other features should not be construed as investment advice, nor does their appearance imply an endorsement by Microsoft of any specific security or trading strategy. An investor's best course of action must be based on individual circumstances.