A Canadian buyer interested in Whatcom County was chatting with me about exchange rates as he considered a purchase in Whatcom County, specifically Semiahmoo. This very knowledgeable man made excellent points about short term rates. Recent CDN dollar strength on interest rate increases. I would think this consideration extends to lots of other markets where Canadian’s consider buying 2nd homes or investing.
Those 2 types of purchases have many things in common but also significant differences.
US 2nd (fun) home purchase: Many west coast Canadians have experienced incredible gains on their home values creating equity. In addition, local banks are happy to lend against that equity. The concern is that a major shift in exchange can dramatically affect the CDN value of their new second home. For example, a $600K US home has dropped by $10% in CDN dollars since May, were the funds brought home.
Investing Purchase: Returns on rental properties in Whatcom County range from 5% to 7% CAP rates. Income properties in the lower mainland average a 2% return.
However, I think the exchange rate argument is flawed in a few areas. Firstly, value for Whatcom County homes represent a 4 to 5 or even 10 times better value in price per foot for an equivalent home in Vancouver. The average home sale of a beautiful home in Semiahmoo is $225 per foot. Compare that with a golf course community with all the amenities and access to beaches, resorts and services and ocean anywhere in the lower mainland.
The biggest flaw is home values should be based on a longer-term view. If I purchase a second home, how long will I and my family benefit from it? Do I really care if the $ fluctuates by 2% in November 2017. On the other hand, Whatcom County averages 6.5% annual appreciation over the last 75 years. So with a 10 year view appreciation greatly outweighs the exchange risk.
Lastly, If the CDN dollar did strengthen significantly wouldn’t the relative costs of US ownership drop?
Contact me if you are interested in discussing an investment in Whatcom County.