Thursday, 6 March 2014

Why Canada Can Benefit from An American Real Estate Recovery

Let's face it, as Canadians we like to think we are a kind and gentle folk, but most of us can't help but be competitive with our southern American neighbour every chance we have, whether it has to do with hockey, health care, hot dog eating, film festivals or who has the best cities.

Canadians can get a little smug when it comes to real estate and Americans. During the recession, we didn't have the colossal collapse in our real estate markets because of our cautious and careful banking and governing ways. Meanwhile, the Americans went to extreme heights only be knocked back down to earth with their careless and greedy banking practices.

But the time for Canadian superiority is about to close because American real estate is back, even in the hardest hit places like Nevada, southern California and Florida.  A large bungalow, for example, in a decent Miami neighbourhood fell as low as 250K three years ago (in American dollars) from a height of 700K to 800K at its peak. Already, this house is on the rebound and shows no signs of slowing down. This bunglaow would go for around 400K this year.

As a Canadian, or a Torontonian, you may think that the return of their real estate market has little bearing on ours, but the truth is, it does. There's no guarantee American real estate will not crash again at some point, particularly in the southern tourist destinations. Still, the markets return so far has been steady and strong; and Canadians should be happy about this, even though we secretly (or openly) want to be competitive with our American friends.

Just how will Canadians benefit from an American real estate recovery? Here's how:

There's been a lot of concern that there has been too much foreign investment in Canadian cities. Too much foreign investment can destabilize a city's real estate foundations. If something bad happens to the economy like a recession or a turnaround in the real estate market, it's easy for owners from abroad to sell their real estate assets in Canada. It's not their primary home, so they have no skin in the game. It's merely an investment. If several of these real estate investments are sold at once, this could create a very destabilized economy. A lot of homes for sale could flood the market and cause prices to fall fast.  During, and for many years following the recession, many foreign investors were afraid of investing in the real estate markets in the United States. So, they began to buy up properties in stable Canada. Now that the States are showing an increase in their real estate prices, the investors have moved on to their cities. This, in turn, allows for more owner-occupied purchases and an more stable housing market in our country. The foreign investment becomes more evenly distributed.

Canadians have been buying up a lot of the American vacation properties. In Florida, most of the incoming investors are paying all cash for their homes so they have no mortgage. As these properties increase quickly in value, they will help build the equity of many Canadians. Richer Canadians with great assets makes for a healthier financial status and a better net worth.

A happier real estate market in the U.S. means richer Americans will spend more money in Canada whether it's tourism or through investment in real estate or other Canadian industries. We’re right there above them, sharing a giant border. They will come over.

Even though the United States and Canada can effect one another so much, we do have real estate markets that function quite differently. For the last few years, some Canadian cities have been climbing the international charts for expensive cities. Though they are relatively inexpensive compared to Europe and parts of Asia, Vancouver and Toronto are more expensive in the real estate department than they have been in a few years. I don’t think our cities will fall in value. In fact, I think real estate in these cities will continue to climb; but the return of real estate in the United State will make many American cities increase in the price far more than we will see in Toronto or Vancouver or Montreal or Calgary. San Francisco, Chicago, New York and even Dallas will have bigger returns.

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