Canadians Warm to Phoenix
Canadians Warm to Phoenix
House Bargains, Greenback’s Woes Draw Northern Buyers Into Sun Belt Markets
By CHANA R. SCHOENBERGER
Canadians are on a Sun Belt shopping spree.
Phoenix and other warm-weather cities that have seen real-estate prices crater are newly popular among Canadians looking for second homes or investment properties, brokers and buyers say.
They are lured by the weak U.S. dollar, historically low interest rates and rock-bottom property prices, dragged down by high unemployment and a wave of foreclosures. For the two years that ended in March, Canadians made up the largest percentage of foreigners buying homes in the U.S.—23%—up from 11% in 2007, according to the National Association of Realtors. Arizona and Florida are the focus of their interest, according to the Realtors’ group.
Germain Villeneuve has $50 million to spend on Phoenix real estate, all from Canadian investors like himself. The former real-estate broker, 50 years old, moved to Phoenix from Montreal in January to oversee acquisitions for the Living Well Homes investment fund. Since October, he has bought 110 houses and two apartment buildings in the Phoenix area.
Living Well plans to fix up the properties and rent them to locals who have lost their homes to foreclosures and short sales—transactions in which the property sells for less than the mortgage. Then, five to seven years from now, the fund hopes to sell the homes for a profit.
Phoenix is newly popular among Canadians looking for second homes. Chana Schoenberg discusses with Simon Constable and Wendy Bounds on The News Hub.
“We know that when [the economy] recovers, the homes will appreciate in value, and the U.S. dollar will get stronger, so when it comes time to move our money back into Canadian dollars we’ll make more money,” said Mr. Villeneuve, calling from a three-bedroom, two-bath house he hoped to snap up at auction for $113,000—less than half its last sale price. It ended up going to another buyer for $120,100.
Such investments aren’t without risks. Continued economic weakness and high unemployment could keep battered housing prices from improving for an extended period. And the strong Canadian dollar, which has bolstered Canadians’ buying power in the U.S., could come back to haunt them.
The Canadian dollar began flirting with parity against the U.S. dollar—meaning one loonie could be exchanged for one greenback—in 2007. It dropped as low as 94 Canadian cents for each U.S. dollar, for the first time in three decades. The U.S. dollar gained strength during the 2008 financial crisis, then lost steam again. In the past few weeks, a burst of fear that the world economy is on the brink of another recession has led the greenback slightly upward, with one U.S. dollar now buying 1.03 Canadian dollars.
“Over the medium to long term, we continue to believe that the U.S. dollar will weaken materially from current levels, leaving Canadians who invest in U.S. real estate exposed to potential foreign-exchange losses,” said Camilla Sutton, chief currency strategist at Scotia Capital in Toronto.
Despite such risks, maple-leaf flags are popping up around Phoenix. At the Ice House Tavern, a sports bar, Molson Canadian is now the No. 2-selling beer on tap, after Miller Lite. The bar’s third annual Canada Day celebration July 1 attracted 70 people, after beginning in 2009 as a potluck for 15. “It kind of started as a joke and now it’s gotten pretty serious,” said owner Daryl Chester.
Wayne McIntosh, who owns the Half Moon Drive-In diner just north of Winnipeg, Manitoba, closed in June on a $260,000 vacation condo in Desert Ridge, in a new gated development that will be ready in February. He plans to take his wife and two children there at least five weeks a year.
“It’s purchasing power, plain and simple,” said Mr. McIntosh, 48, of the strong Canadian dollar. “In the days when our dollar was 60 or 65 cents, I wouldn’t even be talking to you. The strong Canadian dollar has created a lot of opportunities for Canadians.”
Buyers are paying cash or taking out mortgages with U.S. banks, said broker Michael Milic of Colliers International in Scottsdale, a Canadian with 15 years’ residency in the area. “They don’t mind lending to foreigners, I don’t think,” he said.
At Phoenix-Mesa Gateway Airport, flights from Bellingham, Wash., and Grand Forks, N.D., bring in Canadians who drive over the border for cheaper tickets, as low as about $250 round trip. Real-estate companies have discussed buying ads in the terminal targeting Canadians who want to buy property, said airport spokesman Brian Sexton.
Mr. Sexton represents the other side of the Phoenix real-estate trade. He bought his two-bedroom condo in 2007 for $180,000. With a growing family, including a new baby, he would like to move into a bigger place. But selling his condo is a challenge, even with similar units selling for $60,000, he said.
Mr. Sexton said his condo complex is rife with rumors a Canadian investor recently bought up a handful of units from short-sellers, with plans to rent them out. He is considering chasing down the buyer to see if there is any interest in his own unit.
“Americans always seemed to have more money than Canadians,” he said. “What happened?”