Is it too late to buy a winter getaway?
Jack Frost has been hard at work lately; making many of us north of 49 yearn for warmer climes. But is it too late to buy a winter escape? The loonie has weakened and the real estate market in the U.S. has strengthened. Perhaps the window of opportunity for Canadian buyers has closed?
Recent real estate statistics indicate that the American market, especially in southern regions favoured by Canadian buyers, is shrugging off the long recession. CoreLogic’s Case-Shiller indices, the best barometer of U.S. real estate activity, show steady improvement nationally.
Prices grew on average by 10.2 per cent early in 2013, the first year-over-year double-digit price increase nationally in seven years. Many of the housing bubble regions have soared far more. Phoenix is up 23 per cent, Sacramento has gained 21 per cent and Orlando, Fla., has risen 14 per cent.
Home values were eviscerated in Las Vegas, Nev., following the real estate collapse with 60 to 75 per cent of homes in many neighbourhoods worth far less than what was owed on the mortgage. Prices in Sin City have jumped nearly 21 per cent since the beginning of 2012.
However, the stream of good news for beleaguered homeowners in the U.S. doesn’t necessarily mean bad news for Canadians who would love a foothold in the southeast or southwest.
In Spring Hill, an hour north of Tampa, Fla., and minutes from the Gulf of Mexico, every second home in certain areas was vacant in 2011. Today, things are improving but prices have not moved up appreciably and three-bedroom, detached homes in reasonable condition can be still be found for under $100,000.
Similarly, while Phoenix prices are red-hot overall, there are many overbuilt suburban areas and golf course developments where there are still deals to be had.
Canadians who prefer to rent will still find bargains. While Las Vegas is one of the hottest real estate markets in the country, rental rates actually declined by two per cent in 2012. There were also decreases in Tucson, Ariz., Miami, Fla., Fort Lauderdale, Fla., and Orange County, Calif.
Long-term and short-term rentals don’t necessarily move in lockstep but holiday rates for one- to four-month terms haven’t changed much in the last five years. A key reason is that many northerners, especially Canadians, swooped in to take advantage of the real estate carnage and purchased rather than continuing to rent.
Montrealers Simon and Charlotte Sullivan, both 62, had annually leased the same Tarpon Springs, Fla., condo for two months since 2002. Last year, they jumped in and purchased a unit in the same building. A number of their snowbird friends from Quebec also made the same decision.
Because our writing work is portable, my husband and I thought we’d like a few months of winter respite. In 2009, we rented a house on a lovely acreage near a large state forest in central Florida for $1,400 a month including utilities.
In early 2010, we too were lured by the rock bottom prices and bought a small farm in the same area. This year, the rental property is going for $100 per month.
The pace of real estate price increases isn’t expected to be as torrid over the next year. CoreLogic actually predicts some small declines throughout Florida in markets such as Fort Lauderdale, Miami and Orlando. There is still a huge foreclosure inventory, particularly in southern markets, to keep prices down. In Florida, for example, one in every 392 housing units received a foreclosure filing in 2013. That compares to the national figure of one in every 1,155, according to RealtyTrac.
Balancing the flatter future prices is the loonie, which recently sunk under $0.94, a three-year low. This increases the cost of buying U.S. property. In late November, trading behemoth Goldman Sachs suggested market timers short the Canadian dollar after predictions that it will hit US$0.88.
If the forecast is correct, that means those who buy now in Canadian dollars will still benefit, assuming the loonie moves nearer the historic norm and stays there.
Beware though, currency often has a mind of its own. Don’t bet on getting a boost on your investment from currency alone. Also, quick gains from a flip are possible but plan for the longer term and ensure you have at least three years of expenses on hand.
Do a forecast of carrying costs and build in a greater than cost-of-living increase annually, especially for taxes and insurance which tend to jump up rather than rise steadily.
You can certainly ameliorate currency declines by renting your U.S. property. However, most people overestimate revenue and underestimate costs.
Taking everything into account, there are still opportunities in southern U.S. real estate but treat it like any investment and be clear about the risks.