They are a group of foreign buyers who took out record levels of currency from their country in the past year to buy residential property in the U.S., though only a minority plans to take up permanent residence. The buyers? Well, they might not be who you think.
Canadians bought a record US$19 billion worth of property in the United States last year, surpassed only by the Chinese who purchased US$31.7 billion, according to a report out Wednesday from the Washington, D.C.-based National Association of Realtors (NAR).
But few south of the border seem to care about the influx of foreign buyers from the north.
“Well, perhaps they will start thinking about it in some hot markets,” joked Doug Porter, chief economist with the Bank of Montreal about some type of foreign tax on Canadians, mentioning an article he recently read about affordability issues in California.
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Porter noted a number of U.S. states do have tax implications for Canadians, a common method being homestead taxes which provide lower property levies for state residents, and Canadians selling property also face a withholding tax.
But they are not as direct as the 15 per cent tax on foreign buyers imposed in Ontario and British Columbia to help control prices in and around their largest cities, a surcharge that hits U.S. buyers.
“I think foreign investment is still quite welcome; after all, it helped put a floor under the market during its worst days in 2008-12,” said the economist, referring to the U.S. housing market crash.
Canadians purchased 33,819 properties in the U.S., the top five destination by state Florida, Arizona, California, Texas and Georgia. Those numbers pale in comparison to the 69,135 purchases in 2010 when the dollar was near par. But Canadian activity has perked up over the past year, thanks to rapidly rising domestic prices, which appear to have helped finance stateside purchases.
“You’ve got equity in your houses that enables you to potentially move it to the United States and diversify your real estate portfolio,” said Danielle Hale, managing director of housing of research at the NAR. “The numbers suggest we saw Canadians doing that in 2017.”
The realtor group looked at sales over a 12-month period from April, 2016 to March, 2017 and saw an almost 26 per cent jump in purchases from a year earlier among Canadians. The average property price by Canadians during that year-long study was $560,844, an almost 69 per cent jump from the average price a year earlier.
The NAR noted Canadians were seeing a rapid rise in their domestic prices versus the U.S. In Canada, house prices rose in real terms by 10 per cent in 2016, with house prices rising 17 per cent in the Greater Vancouver Area and 21 per cent and Greater Toronto Area. U.S. house price growth, when adjusted for inflation, was about five per cent, the NAR said.
“The dollar does affect the purchasing power but while there has been fluctuation (over the last 12 months), there has been some stability,” said Hale. “It’s not currency (today) but if the dollar goes up that could be a positive influence.”
Canadian buyers were mostly using cash to make their purchases with 76 per cent of purchasers reporting that method. Another 21 per cent received a loan in the U.S. and four per cent received a loan back in Canada to buy their American property.
When it comes to making the U.S. their permanent home, Canadian buyers are among the least likely among the top five foreigners purchasers stateside to take residency. Only 26 per cent plan to take residence, 36 per cent will use the property as a vacation home, another 16 per cent are just buying property as an investment and 12 per cent have a hybrid vacation home/residential investment.
Janice Fox, the broker of record with Hazelton Real Estate Inc. in Toronto who sells luxury condos in south Florida, said she rarely sees Canadians pull up stakes and permanently move.
“There is just an abundance of capital,” said Fox, who believes the majority of buyers south of the border are from Vancouver and Toronto. “I find the buyers are the very rich and they don’t care where house prices are and then you have people selling their house for $4 million and they just never imagined it could be worth that much.”
Fox said the downsizing possibilities are strong for aging couples. She said a $2 million home sale in Toronto, for instance, would get someone a decent 1,000-square-foot apartment downtown in Canada’s largest city for $1 million with another US$500,000 probably picking up a 1,500- to 2,000-square-foot place on the beach in south Florida.
“I think the majority are either taking equity out of their house here and putting a mortgage on their property but more are cashing out and selling their property and taking the equity down to Florida and buying something smaller here,” she said.
Both Ontario and B.C. have brought in a 15 per cent tax on foreign buyers to help control prices in and around their largest cities, a surcharge that hits U.S. buyers. Porter noted a number of U.S. states do have tax implications for Canadians, a common method being homestead taxes, which provide lower property levies for state residents.
gmarr@nationalpost.com
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