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   ARTICLE   |   From Scotsman Guide Residential Edition   |   December 2015

Here Come Cross-Border Sales

Canadians are looking south, attracted by affordable U.S. home prices

Canadians invest millions of dollars in United States properties each year and represent a large portion of foreign homebuyers in the U.S. In fact, between April 2014 and March 2015, Canadians accounted for $11.2 billion in purchases of U.S. real estate, or 11 percent of foreign real estate purchases in the country, according to a study by the National Association of Realtors (NAR).

The mortgage process in the United States, however, is much different than what Canadians are accustomed to back home. Given these differences, mortgage originators can gain an edge over the competition if they can educate and assist Canadians homebuyers about the U.S. system as they encounter potential challenges.

Here are a few of the differences:

  • The mortgage process takes longer in the United States than in Canada — a week in Canada versus about 60 days in the United States.
  • U.S. homebuying requires more documentation because of the highly regulated market.
  • Fees in the U.S. can be higher than in Canada, typically 3 percent to 5 percent higher when financing property.
  • Mortgage interest differs between the U.S. and Canada. U.S. mortgage interest is accrued monthly and Canadian mortgage interest is accrued semiannually.

Even with these challenges, Canadians represent a signficant U.S. homebuying group, so it’s important for mortgage originators to understand how purchase trends are evolving. By understanding the current cross-border homebuying process and trends, and working with an expert on cross-border homebuying, originators can find ways to differentiate their mortgage business.

Financing over cash deals

In 2016, more Canadians will be using mortgage financing in making home purchases. With the Canadian dollar at its weakest level in 11 years, Canadian homebuyers may be more inclined to take out a U.S. mortgage versus paying for a property in an all-cash transaction. According to the NAR, Canadians purchasing their homes with mortgage financing increased from 18 percent to 23 percent over the past year.

Mortgage financing lessens the amount of money Canadians need to immediately convert from Canadian to U.S. dollars, potentially saving them money in the long run. For example, if one U.S. dollar is equivalent to CA$1.32, a $200,000 home would actually cost CA$264,000, because of the currency conversion.

According to the NAR, Canadians spend an average of $380,300 on a home in the United States, so the currency conversion costs add up to significant amounts. With mortgage financing, buyers can save on a lump-sum currency conversion and have the option to pay off their mortgage with no prepayment penalties when the Canadian dollar improves.

Some Canadians may be considering a delay in purchasing a home because of the weak Canadian dollar. Waiting to buy a property, however, could actually cost Canadians more money, because experts estimate that mortgage interest rates are likely to increase, and the Canadian dollar will continue to fluctuate in the coming years. Canadians who purchase property now may be able to minimize costs, while property costs are still low, and lock in a relatively low U.S. interest rate.

Cheaper prices, better weather

In the year ahead, Canadians will take advantage of relatively cheaper U.S. housing costs. Real estate can be a great investment — whether a buyer is looking to diversify assets, leverage the property for rental income or make annual vacations easier.

With the U.S. boasting comparatively lower housing prices, Canadians have the flexibility to stretch their dollars farther and get more square footage than they can in Canada. For example, the median cost of a home in Toronto is more than twice the price of a home in many real estate markets in the U.S. that are popular with Canadians — such as Phoenix or Fort Lauderdale, Florida.

In addition, Canadians will continue purchasing homes in popular snowbird markets in the United States. As Canadians move south to flee the frigid winters, they’re more likely to flock to the popular U.S. locales. Some 41 percent of home purchases by Canadians are in Florida and 16 percent in Arizona, the NAR reports. 

In addition to established markets like Florida, Arizona and California, there are emerging markets like the Texas Rio Grande Valley and Colorado that will continue to see an increase in Canadians purchasing homes. Many Canadians enjoy retreating to Colorado, where they’re able to take advantage of the resort communities and skiing opportunities.

Canadians also will continue buying vacation properties in attractive areas outside of major cities. Along with a preference for homes in warm climates, Canadians enjoy purchasing in suburban and resort areas. In fact, between April 2014 and March 2015, 47 percent of Canadian home purchases were for vacation purposes, according to the NAR. Those purchases were almost evenly split between condominiums and townhouses combined and single-family detached homes. 


 


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