Will the Trend of Canadians Buying International Property Continue?

By
Services for Real Estate Pros with HiFX

Will The Increasing Trend of Canadians Buying South Of The Border Continue?

The international property buyer has been an important source of business for many US Realtors since the market downturn. It's estimated that between 150,000 and 190,000 homes were sold to foreign nationals from May 2007 to May 2008. Canada replaced Mexico as the country with the largest share of foreign buyers in the U.S. The percentage of Canadian buyers doubled from last year, from 11 percent to 23.5 percent according to a recent National Association of Realtors survey.

However, the recent strength of the US dollar (USD) against the Canadian dollar (CAD) is now starting to make it more expensive for Canadians looking to buy U.S. properties. Meanwhile the Canadian buyer knows that real estate prices in the U.S. are at historical low levels. Could it be that continued strengthening of the US dollar will prevent Canadians from fulfilling their dream of owning a "place in the sun"? It doesn't have to be, particularly if the Canadian buyer accesses some of the new financial products available in the marketplace.

The Situation:

After gaining 17 percent in 2007, the Canadian dollar is down 6.4 percent in 2008 amidst a shrinking economy and a drop in oil prices. On August 8th 2008 alone, the Canadian dollar dropped 1.2 percent against the U.S. dollar, the biggest decline since March 20, 2008. The Canadian dollar is currently trading at CAD $1.0626 per US dollar, the lowest since last August.

A real example: due to the impact of fluctuating exchange rates, the cost of a U.S. Condo (priced at USD $300,000) for the Canadian buyer has increased by CAD$ 20,040 in just 3 weeks.

   Cost in CAD $300,510                                           Cost in CAD $320,550

                                          VS.                      

          July 21st , 2008                                                     August 8th, 2008

(CAD$1.0017 = USD$1.0000)                          (CAD$1.0685 = USD$1.0000)

Can this pricing increase continue? Is there a way for the buyer to insulate himself/herself?

The Solution:

If the US dollar continues to strengthen against the Canadian dollar, an excellent way to protect against the market volatility and downside risk is through a "forward contract." There are companies, such as HiFX, that provides forward contracts out to 2 years in the future, effectively helping clients lock in exchange rates and give them peace of mind.

If you would like more information on how HiFX can assist you or one of your clients, please let me know.  You can reach me toll free at (877) 999-4439 or nathan.barcic@hifx.com, if that's easier.

Either way, I hope this was helpful!

Nathan Barcic

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