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   ARTICLE   |   From Scotsman Guide Residential Edition   |   December 2014

Crossing the Border for Deals

Industry data is the key to understanding Canadian homebuyers

Canadians are the top foreign U.S. homebuyers, investing nearly $14 billion between March 2013 and March 2014. To earn the business of — and better serve — these neighbors to the north, it’s crucial that U.S. mortgage originators closely monitor industry trends, keep a watchful eye on emerging U.S. real estate markets and work to better understand the motivations of Canadian buyers.

Apply industry insight

The National Association of Realtors’ (NAR) Profile of International Home Buying Activity is an invaluable tool for originators looking to keep tabs on Canadian homebuying trends. The 2014 report estimates that international sales from Canadian buyers increased by 16.9 percent from 2013, and the median price of reported properties increased from $183,000 to $212,500. These statistics demonstrate that fluctuations in the Canadian loonie and U.S. dollar have not deterred Canadian buyers, who continue to buy vacation and investment properties south of the border.

With the Canadian footprint in the U.S. real estate market continuing to expand, originators should take steps to understand and accommodate Canadian buyers. Many Canadians are unfamiliar with the U.S. mortgage process, and misconceptions may deter these buyers. There is significant opportunity for originators to educate buyers and offer tailored services to address financial concerns.

Canadian and U.S. Home-Price Divergence. Source: National Association of Realtors and Canadian Real Estate Association

Among international purchasers surveyed for the NAR report, 30 percent cited cost, taxes or insurance as reasons they did not purchase U.S. property, with 19 percent citing financing issues. While these particular statistics are not limited to Canadians, they do shed light on the value of educating international buyers and developing partnerships to proactively address their financial concerns.

For example, some Canadian buyers choose to pay cash for a home without realizing the significant cost of conversion fees. The one-time foreign exchange costs of converting Canadian dollars to U.S. dollars can add up. Banks should take note of this trend and help buyers avoid these fees by paying exchange costs only on the funds needed for the downpayment and possibly other one-time purchase and financing costs.

Track real estate markets

Although Florida continues to be the most-popular hotspot for Canadian buyers, several other states are drawing the attention of snowbirds in search of warm weather or activities such as skiing. In fact, 36 percent of U.S. real estate purchased by Canadians in 2013 was located in Arizona, Texas or California. Arizona and Texas are particularly attractive because home prices are lower compared to California and other states. Colorado is also appealing to Canadian residents because of its unmatched skiing and similar activities.

Proximity to home and ease of travel are other factors for snowbirds living in Canada for a portion of the year. For example, Canadians living in Western provinces will often look for properties on the West Coast of the U.S.

Preparing for this new influx of Canadian buyers is a great way for originators to differentiate their service offerings and establish trust early in the homebuying process.

Monitor cultural shifts

In general, Canadians are more likely to split time between their U.S. and Canadian properties than other international buyers, with nearly half spending three to six months annually in the U.S. Thus, Canadian buyers must carefully consider the costs and benefits of renting versus owning property. If the real estate markets are favorable and there are low interest rates in emerging U.S. markets such as Arizona or Texas, these buyers have a strong incentive to buy property as a long-term investment.

Price also can drive Canadian buyers south of the border. Between 2005 and 2014, home prices in the U.S. and Canada diverged dramatically. Recent data from the NAR and the Canadian Real Estate Association show a large gap. The median U.S. home price was $221,600 this past July, while the average home price in Canada was $401,643. This divide exists even when Toronto and Vancouver, cities that skew Canadian data upward, are omitted. The average Canadian home price without those two metropolitan areas was $328,027 this past July.

Thus, even if the Canadian dollar is weaker in terms of percentage exchange, the price point for homes in the U.S. is now often lower than what buyers can find in Canada.

•  •  •

It’s important for originators to understand the cultural and financial motivations of Canadian buyers and market their services accordingly. It’s also critical for originators to identify areas such as mortgages and taxes where Canadians need the guidance of a cross-border banking expert. By taking these factors into consideration, originators can differentiate themselves from competitors and offer unique services to meet the needs of Canadians embarking on an international homebuying process. 

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