Canada's Housing Bubble

Aug 9, 2010 Sunny Freeman The Canadian Press

There's real estate bargains in depressed U.S., but think carefully before you buy

Toronto -- Mary and Ron Ethier long believed a getaway home in the Florida sun would remain a retirement dream -- but when a recent real estate turnaround opened the border to a growing flock of snowbirds, the couple suddenly saw an opportunity too tempting to pass up.

"We just felt with the prices that were happening down there, that it was out of our reach financially," said Mary Ethier from her home in Pembroke, Ont.

"But when their real estate market basically took a big hit and the Canadian dollar came up, we thought if we're ever going to do it, now's the time to get off our butts and go and do it."

The couple -- too busy with their lawn-care franchise to enjoy Ontario summers -- toured homes in the Fort Myers, Fla., area in the fall of 2007 and made a lowball offer, expecting to negotiate, but instead found their deal accepted.

By January, they owned a condo in a gated community -- a property foreclosed upon when the U.S. housing bubble burst and home prices began to plummet and many U.S. homeowners realized they could no longer pay their mortgages.

The loonie has since risen to hover around parity, while U.S. home prices have stagnated -- creating new financial incentives for Canadians to act fast and scoop up U.S. real estate deals.

"It's a once in a lifetime opportunity for Canadians," says Mark Dziedzic, a realtor with Cross Border Realty and a snowbird himself.

The Sunbelt states of Texas, Arizona, California and Florida are favourites, while there are also deals to be had in Nevada and Georgia. The average price of a home in Phoenix, Ariz., is $144,600 US, compared with $432,253 in Toronto.

"People are buying $40,000 to $50,000 condos in Phoenix right now. High-end condos (in Toronto) are selling for $400,000 to $500,000," Dziedzic said.

Taxes, condo fees and closing costs are also generally less expensive in the United States, he added.

Prices in most U.S. regions have steadied after falling for three years, but a high number of foreclosures persist, lowering prices, especially in Florida and Nevada, said Bank of Montreal mortgage specialist Laura Parsons.

"This is the time to buy if you're going to," she said.

"I think you've got to look at this as a long-term investment because you're getting such a deal, you're going to have to hang on to it for a while."

She says a buyer will have to ride out any further downturns before the market picks up again.

There is a fine balance between rushing to buy or waiting for lower prices. Economists predict the U.S. housing market will remain soft, but it's futile to make decisions based on where a currency or a housing market is going.

"I don't think you need to rush down and get a place, but saying that, the good stuff in the lower price range ... those are moving.

Buying real estate in the U.S. is becoming easier for Canadians as more snowbirds snap up getaway homes. But experts caution that the buying process, which takes about three to four months, is a different beast. Here's a 10-step process checklist to get you started:

1. Go online to search areas and properties you're interested in. Narrow down a state before choosing a real estate agent who can help gather more information about particular areas and properties.

2. Determine why you're interested in the property, either for pure investment (to rent out), for a second home or a combination.

3. Research property, gift and income tax rules, as well immigration requirements -- under the "substantial presence test," crime rates etc. to be as informed as possible.

4. Contact a real estate agent in the United States who focuses on Canadians. They will best know how to complete the real estate process from across the border. Fees are comparable to what you'd pay in Canada.

5 Get pre-approved for second home financing, usually in Canada because there is very little financing available in the United States, especially for foreigners. Some large Canadian banks have branches or affiliates in the United States that offer Canadians mortgages, but the down payment requirement is usually higher -- around 30 per cent. Many choose to take equity out of their home through a secured line of credit (interest rates are low right now) and using cash on hand.

6. Consider currency exchange. The dollar fluctuates and if you're set on buying in the United States, it may be a good idea to look at converting money incrementally when rates are good as currencies are volatile.

7. Visit for at least two to four days. Never buy without having seen the property to avoid being scammed. Bring proof of funds when visiting -- banks will ask for it and if you do not have it readily available, it will hurt your chances.

8. Put in an offer through a title company -- not a lawyer in the U.S. A deposit is always paid to a title company, never to a brokerage. The closing process can take about four to six weeks. Get your agent to clearly explain the difference between buying a short sale property and one that is bank owned. A short sale occurs when the lender allows the property to be sold for less than the mortgage owed.

9. Buy insurance -- in addition to liability, you may need disaster and other types of insurance, so look into an umbrella policy. Insurance may be included in home ownership association fees.

10. Talk to neighbours. Many have nooks of Canadians, who help each other out by looking after homes when fellow snowbirds aren't around. Also look into local issues such as overheating and termites.