Canadian homebuyers can once again be found in Florida, Arizona, California or wherever you might get your fix of warm and sunny weather south of the border.
“We have definitely seen an increase in Canadian buyers,” said James W. Bates, a real estate specialist at Premier Sotheby’s International Realty in Naples, Fla.
Bates used to get 80 to 90 per cent of his business from wealthy, sun-starved Canadians snapping up vacation homes. But the share of his Canuck clients dropped precipitously — down to around 40 per cent — in 2015 and 2016, when the Canadian dollar slipped to around US 75 cents after years of holding at close to — or above — parity.
Now, though, Canadians are back to making up 60 per cent of Bates’ customers.
Numbers from the U.S.-based National Association of Realtors show a similar trend nationwide. By 2016, the value of U.S. residential property bought by Canadians had plunged to just over half of the US$17 billion ($17.5 billion) that Canucks spent in late 2009 and early 2010, when the loonie was firmly above 0.90 cents US and the subprime mortgage crisis had pushed U.S. home prices to record lows.
But Canadians’ retreat from the U.S. seems to have been only temporary. By 2017, they had snatched up US$19 billion ($24.7 billion) worth of U.S. homes and US$10.5 billion ($13.6 billion) in the 12 months leading up to March 2018.
It’s not that the loonie has regained strength. The exchange rate has been holding in the range of US75-80 cents for over two and a half years. And the bargain home prices of the post-crisis era are now long gone. In Naples, for example, Bates said the prices of downtown and beach-side properties have doubled over the past six to seven years, and even in less coveted areas, they have now fully recovered.
Meanwhile, interest rates have been climbing on both sides of the border, pushing up the cost of mortgages.
Bates’ northern clientele used to be mostly boomers looking to turn into snowbirds. But now he’s increasingly seeing families with children who fly south just for a few weeks or a long weekend.
But Canadians still seem to have money to spend and appear to have gotten used to the idea that everything in the U.S. now costs 25 per cent more, according to Bates.
U.S. still relatively cheap compared to some areas of cottage country
Rob and Melanie McLister, both Toronto-based mortgage brokers at intelliMortgage, are among the Canadians who have recently been buying down south.
After considering a vacation home in Muskoka, one of the hottest markets of Ontario’s cottage country, and Florida, the couple eventually settled for the latter.
There were a number of things to consider, McLister told Global News.
Prices depend on what and where you buy. “An oceanfront condo in Naples, for example, will cost you roughly the same as a nice rustic cottage on a smaller lake in Ontario,” McLister said.
Beach condos are starting at US$600,000 ($788,000), Bates said. By contrast, the average price for a Muskoka lakefront property was $1.5 million, according to a 2017 report by Royal LePage.
And compared to the Greater Toronto Area, which receives 115,000 new residents every year and where one in six own vacation homes, “in Florida there is more supply,” McLister said.
But supply restraints aren’t a problem just around places like Toronto and Vancouver. Alberta cottages are, in fact, the priciest in Canada — going for over $800,000 on average, according to the Royal LePage report — due to a dearth of lakeside properties in the province.
Another advantage of properties in milder climates is they allow for a longer rental season.
“In Ontario cottage country [that] is usually no more than four months a year,” McLister said. “That’s not long to generate the revenue you need to pay for a year of expenses.”
However, Canadians shouldn’t assume buying in the southern U.S. means being able to rent year-round.
In southern Florida, for example, “you get fewer renters and skimpy rents in the summer,” McLister said. In the northern part of the state, “you get fewer renters and smaller rents in the winter.”
But what turned out to be truly painful about buying in Florida was getting a mortgage, McLister said.
“We’re qualified borrowers and mortgage pros. We thought we knew what to expect, but man, were we in for a rude awakening,” he said. “Many U.S. lenders that say they lend to Canadians don’t tell you that they ask for three times the paperwork and may not recognize all your Canadian income.”
Canadians lenders like RBC and BMO that offer U.S. mortgages for Canadians “are more willing to accept solely Canadian income. But they still have to comply with all the U.S. paperwork and underwriting rules, which are more onerous than in Canada,” McLister said.
In Canada, closing a real estate purchase takes between one and four weeks, he added. In the U.S., six to seven weeks is the minimum.
Buyers also face higher interest rates in the U.S. The average rate for the most common 30-year mortgage is 4.83 per cent in the U.S. By comparison, the average fixed rate for Canada’s staple five-year term mortgage with a 25-year amortization is 3.54 per cent. (However, U.S. mortgages allow for borrowers to lock in their rates for up to 30 years, which eliminates the risk of having to renew at a higher rate.)
Buying a U.S. property also involves steeper fees, McLister said. He and his wife paid at least $4,500 worth of fees that don’t exist in Canada.
Still, many Canadians avoid the bureaucratic headaches of a U.S. mortgage by borrowing against a property they already own in Canada and using the loan for a cash purchase in the U.S., McLister said. This common financing tactic also allows buyers to minimize their exposure to exchange rate fluctuations, as the debt repayments are in Canadian dollars.
But buying U.S. property often comes with complicated legal and tax issues. Simply owning U.S. property doesn’t mean having to declare income or pay taxes in the U.S., said David Altro, a Florida attorney and Canadian legal adviser based in Toronto. However, renting, selling, gifting or passing on a U.S. home as an inheritance can result in steep taxes without careful planning, he added.
Another issue Canadians should be aware of is Americans’ propensity to file lawsuits and award multi-million dollar judgments. If you’re renting, and your tenant slips and falls, you better make sure that “the sole recourse is the [U.S.] property and not your assets in Canada.”
Usually, the best strategy to tackle most of those issues is holding U.S. property through a cross-border trust, Altro said.
That’s a lot for Canadians buyers to be wary of. Still, asked why he decided to opt for Florida, McLister had a simple answer.
“The thermometer,” he said.
Private Mortgage Source provides private mortgage options for Canadians looking to buy properties in the US; whether it is a secondary property,