Agoracom Blog

Canadians Are Making A Killing Of A Lifetime On U.S. Real Estate … Is It Still Too Early?

Posted by AGORACOM at 7:16 PM on Sunday, October 11th, 2009

The family and I were at church earlier today, followed by the typical social gathering in the church hall.  While there I spoke to a very good friend of mine (I’m not describing him any more than this to maintain his privacy) who advised his family has just purchased a condo in Florida for just $US 60,000.

How big of a killing was this recent purchase?  After factoring in the fall in Florida real estate and the rise of the Canadian Dollar, you’re probably looking at anywhere between $CDN 65,000 – $75,000 over the last couple of years.

The killing is even more dramatic in percentage terms, which is anywhere between 50 – 60%.

This was ironic because I quickly recalled a Twitter conversation I had earlier this week with my friend and Top 10 Financial Blogger, Paul Kedrosky, that went like this:

Snowbirds 01

===============

Snowbirds 02

================

Snowbirds 03

=================

Now, I think my buddy made a great purchase because it’s hard to argue with a 2-bedroom condo for just $US 60,000.  However, for the most part, I still think it’s too early to get into Florida real estate.  Why?  I think the $USD is going to get even cheaper and real estate is going to fall even further due to factors like greater supply coming to market as a result of the foreclosure moratorium.

If you’re Canadian, are you considering buying real estate in the US?  Or is it too soon and better deals are still on the way?

If you’re American, are you considering buying real estate (other than a principal residence) at these prices?

FOLLOW UP:  Here’s a little more support for my position.  Housing Crash to Resume on 7 Million Foreclosures – Bloomberg

FOLLOW UP #2: After a number of comments below, it is telling that not one person is advocating the purchase of US real estate at this time.  Some would say this is a great contra-indicator and telling us this is precisely the time to buy – but this is one of those cases where I’m going to go with the crowd.

Regards,
George

20 Responses to “Canadians Are Making A Killing Of A Lifetime On U.S. Real Estate … Is It Still Too Early?”

  1. Tom Layden says:

    The Canadians are all going to the Sun States. However the rents are not that great. They should look @ Med/Ed cities like Baltimore, Pittsburgh and Phily. Rents are going through the roof. The housing problem would be fixed if credit existed for 1-4 unit rental housing in these cities. One can buy an REO in Baltimore for $100K, put $10K into it and rent the house for $1600/mo. But no credit.

  2. Ronaldo Waylon says:

    In Canada better real estate deals can be made.I can post you about some website that deals with foreclosure homes in Canada.

  3. Mandy Tossman says:

    Thanks for your insights. It is too informative. Each and everyman in this world will surely dream to own a house. Can someone post about foreclosure homes in Canada?

  4. gumby1116 says:

    LTV 10% or 50%

    Did I miss something in your post??

    FYI to all – I love real estate but the one thing I worry about is taking on a reasonable amount of debt (i.e. 50% LTV), only to see the debt exposed to skyrocketing rates due to inflation. I guess the answer is to lock in your mortgage for as long as you can. In Canada you can go as far out as 10%, in the USA you can go much further.

    You can still email me,

    gumby1116

  5. AGORACOM says:

    Great call on the “gated communities” angle. I can’t imagine buying a higher end vacation property in the sand states (Florida, Arizona, Texas, California, Nevada) and then having it exposed to human elements (squatters, drug dealers, etc.). I still think we’re 18 months away from a bottom and fully agree with you that any “cheap” purchases will not be met with any immediate appreciation.

    I like your investment gauge. Makes great sense.

    Great post. Thanks for taking the time to share with everybody.

    Regards,
    George

  6. AGORACOM says:

    I admire the guts to pull the plug and head into a rental. Especially if you’ve got hefty equity that you can throw into the bank and sit on. The more I read posts like yours, the more I realize I need to do the same thing.

    Thanks for the input. Much appreciated.

    George

  7. AGORACOM says:

    I fully agree on waiting to buy a vacation home in the “sand” states. I strongly feel there are better deals to come, especially in the bigger properties. Paul Witham stated further down that “Gated Communities” make a lot of sense and I agree with the logic.

    “Fine” Chicago government? Not touching that one with a 10 foot pole.

    Cheers,
    George

  8. AGORACOM says:

    Hey, Gumby. I actually said 50%. 10% LTV would mean waaaaaayy too much leverage that I don’t feel like exposing to the possibility of hyper-inflation, or simply strong interest rate increases.

    I trust this clarification means you no longer think I’m in need of professional counseling? 🙂

    Best,
    George

  9. gumby1116 says:

    LTV of 10%???

    Now I wonder what the home values are in Canada $1 Mil, $2 Mil? or $100K or $200 K?!? Sure we have those types here in the States, but not that many.

    Don’t know how else to get a hold of you,(except to post it here) so please email me – you have the email I know (as I provided it upon registration).

    We NEED to talk!!!

    gumby1116

  10. gumby1116 says:

    George,

    Your question to me was:

    Gumby: Am I correct to assume that densely populated areas like Chicago are going to see smaller declines than speculative areas such as Arizona, etc.?

    The point I was trying to make was that areas like Arizona, Nevada and Florida (but these are just a few of the states), are seeing HUGE declines because of the HUGE increase in home values. To put it quite simply the coasts (and I will include Nevada and Arizona in this group), but from California to New York and yes Florida, saw a real estate bubble. Home values kept growing and growing, until the bubble burst.

    In the Midwest, yes the Heartland, I would consider us to be more conservative, but we too have see a decrease in home values. Why? As the markets on the “coasts” were escalating, we saw a modest increase in home values in the Midwest.

    Today as we speak, the values have come back down to levels that represent what “should have been”.(the normal increase in real estate values over the last 3-4 years).

    George, if you want to buy a home in Arizona or Nevada or for that matter Florida, I would suggest to WAIT. If you want to buy a home in the Chicagoland area, wait also, but why would you want to buy a home in Arizona or Nevada or Florida, when you have the best of everything in Chicago. Fine people, fine food and fine government (LOL).

    gumby1116

  11. I agree on the fact that Canada cannot remain in a vacuum. I just sold my house of 17 years, only two weeks ago, and I am currently renting. I’m comfortable doing this for a year or three, and keeping an eye out for a rock-bottom deal. I’m in no rush.

  12. Paul Witham says:

    George,

    My biggest concern will be the safety of these assets in areas where people are hurting badly from the effects of this monster of a financial storm, which is only just beginning, I might add. It might cost you a premium but it will be well worth looking at “Gated” communities, as some of these homes will be vacant for a good part of the year. I would hope this will give you some degree of added protection from the theft and vandalism that will certainly affect unprotected neighborhoods when homes are left vacant for a few months of the year. The premium you will pay for this piece of mind will be well worth the expense and it should be recoverable if you hold it long enough. That brings up another point, I’m not looking at this as a short term investment as I don’t feel the housing values will make much of an improvement in the U.S. for a number of years because of the magnitude of this outrageous mess. The biggest advantage I see is that I’ll own a retirement property twice as nice as I could have bought previously for the same investment. If you use that as your gauge to judge this investment you won’t be disappointed in the outcome.

    Regards,
    Paul.

  13. AGORACOM says:

    For now, I pay rent and invest the difference for my long-term appreciation in my asset of choice for this cycle which has been Au and Ag miners

    Woodstock, I like that thinking. The wife and I are seriously considering selling our home, locking in our gains and renting for the next 2-3 years. Real estate in Canada has avoided the US experience – but how long can we operate in a vacuum?

    Regards,
    George

  14. AGORACOM says:

    Steve, thanks for the 2 cents (more like 4 cents). Question: If we get hyperinflation, won’t that hurt anyone who has borrowed to buy real estate – even if the acquisition was a reasonable one at the time? Second, won’t that drive down the price of real estate as fewer buyers can afford real estate due to higher rates?

    FYI to all – I love real estate but the one thing I worry about is taking on a reasonable amount of debt (i.e. 50% LTV), only to see the debt exposed to skyrocketing rates due to inflation. I guess the answer is to lock in your mortgage for as long as you can. In Canada you can go as far out as 10%, in the USA you can go much further.

    Regards,
    George

  15. Steve says:

    I owned rental properties in the Denver area for 18 years…. I am no longer in them…. I am thinking of buying back after prices bottom ( not in Denver tho) the criteria that I am using will be the decline of the dollar and the rise of gold…….. I am thinking when both reach their lows and high’s ..that would be the time to buy… going to need to put that money somewhere and property is “real”… the only thing I wonder about is …if properties will go up as hyperinflation developes……( just mt 2 cents)….. Steve

  16. Mr Woodstock says:

    George
    Before the 70’s, RE appreciated at the rate of inflation (some special areas did more). As the years went by, RE appreciated even more due to various programs/incentives and such until the affordability was in question. At some point when we reach a level of affordability, then it is time to buy and pride of ownership in a good neighbourhood will overcome all arguments. For now, I pay rent and invest the difference for my long-term appreciation in my asset of choice for this cycle which has been Au and Ag miners. I definitely will purchase a home at sometime but I will be more discriminatory with my choice as I view a home as shelter for my family not as an investment in my lifetime.
    I agree with the above posters and we have been had by our so called elected and non-elected officials and they were re-elected or re-appointed.
    Shame on us all.
    Woodstock

  17. AGORACOM says:

    Gumby, Paul, Woodstock … fantastic feedback. I love the “ear to the ground” info from Gumby and Paul + the ROI analysis from Mr. Woodstock.

    Questions: Woodstock. Is is strictly based buying < renting? Specifically, even if I am paying a little more to own a home, don't I get the added benefit of long-term appreciation? Gumby: Am I correct to assume that densely populated areas like Chicago are going to see smaller declines than speculative areas such as Arizona, etc.? Paul: You have highlighted a major unintended consequence of the foreclosure moratorium. Specifically, homes being held off the markets by banks are deteriorating and can't fix themselves as long as nobody lives in them. Frozen pipes, squatters, vandalism, animals, etc. As such, when do we get to a point where banks are forced to throw the homes on to the market - even if it means taking a big hit - vs. holding them and turning entire subdivisions into worthless ghettos? Still early and waiting for more feedback but clearly people see further moves to the downside for US real estate. I have to agree. Regards, George

  18. Mr Woodstock says:

    Canadian: My wife and I have followed the US RE mkt since 2004 when we realized there would be a problem (mathematically) down the road (present situation the US is in). Every area is different. The key is to look at the rental value that the property would command. There are premium properties that one can not apply this rule to. Simply stated, as soon as it becomes cheaper to buy a house rather than pay rent then it is time to buy, Please factor in maintenance, prop taxes on any other expense that you would not have with renting (apples to apples only please). Look at the oportunity cost if you are using cash. I still rent in both countries as we have a way to go yet.
    Either rents will increase to support the present prices or house prices will need to drop. Also some areas like FL have already dropped below rental value and are a bargain now. They may drop lower but if you like the place and the neighbourhood is stable then why not buy there.
    Money always flows to the asset with the best return and that is not yet RE in most areas.
    Woodstock

  19. Paul Witham says:

    I know it doesn’t seem possible, but my guess is your buddy bought a little to early and that housing will drop even further in the not to distant future.

    The main reason will be the huge unreported inventory of bank owned homes, which have already been foreclosed on, but not reported. Take a look at some of the homes in Arizona, 4000+ sq.ft. detached homes for as little as the $160’s.

    I’m going to wait a little longer, but my big concern will the safety in these communities when the American people finally realize what has happened to their life savings, pensions, homes, all at the hands of their own crooked banks, financial institutions, thieving politicians.

    Yes Greenspan, Bernanke, Paulson they’re all crooks for allowing the mortgage and derivative debacles. Sorry, it makes me so mad that I get a little carried away.

    Well at least your friend will be able to get some use out of his new acquisition while I’m waiting for the higher end homes to drop a little more or the neighborhoods to turn into new home ghettos. We’ll have to wait and see how things pan out…………………..

  20. gumby1116 says:

    Living here in the States, and in the heartland (Chicago), and being in the banking business let me share with you what I’m seeing.

    House values have decreased about 30% from their highs in 2006-2008, and we’re experiencing further home value declines at least here in Chicago. States like Arizona, Nevada and Florida are seeing even larger declines.

    For example, a home that was valued $750 K in Arizona in 2006, today you could purchase it for less than $300K.

    If I was a looking to buy a home in the US today, I would suggest waiting until Mid 2010. I see a further decline in the housing market.

    Best advice I can give at this point is to do your research, you will hear/read opposing views to mine, but I’m sticking to my story.

    gumby1116