In February of 2016, the Sun City Insider reported on the impact the weakened Canadian Dollar has had on home sales in Sun City Palm Desert & Sun City Shadow Hills. As the Canadian dollar has recovered to over 80 cents on the US Dollar we are revisiting our investigation how this may impact home buying and selling from our neighbors to the North.
It’s no secret that Canadians have long been attracted to real estate investments in California, and particularly Coachella Valley. But with the weakening of the currency over the past few years, Canadian home purchases have slowed down a bit in California. As of late, there’s a strengthening loonie (Canadian dollar) and that could see a moderate increase from Canadian home buyers.
The loonie has experienced a whopping 10 percent rise in value since May of this year – creeping towards 82 cents to the U.S. Dollar in September 2017. So, to what can we attribute the rapid increase? It’s basic economics – literally.
The value of the loonie can be chalked up to Canada’s rapidly improving economy. It’s currently among the strongest in the world, which hasn’t always been the case over the past few years. In July, the International Monetary Fund predicted that Canada’s GDP will expand 2.5 percent just this year. This increase would be one percentage point higher than last year, and the best of the seven richest (G7) world economies.
Meanwhile, the IMF has adjusted its outlook for the U.S. due to their belief that the U.S. president will not deliver on the tax cuts as promised, and the U.S. dollar will suffer. So, as the loonie strengthens, the U.S. dollar falls flat.
So, What caused the increase?
The economy in Canada has been rapidly improving since the end of 2016, which started the gradual strengthening of the loonie. But things started to really speed up come summer. The Bank of Canada finally got on board with the improvements in July of this year by raising interest rates. This was the first time the BOC had risen rates in seven years, a true indication that the Canadian economy was seeing some big changes.
The Canadian dollar is also very sensitive to the value of oil, which hadn’t made huge improvements in the recent months so some analysts were skeptical – until OPEC had their say. Planned export cuts by Saudi Arabia and other signs of market rebalancing drove oil prices higher, with U.S. crude futures jumping 2.7 per cent to settle at $50.92 a barrel.
The increase of oil futures coupled with a better than expected housing report caused the loonie to bump just above $0.80 relative to the US dollar.
It is possible for this significant increase to continue to push up the value of the loonie depending on upcoming interest rates.
What does this mean for U.S. real estate?
Towards the middle of 2016 we were still seeing a decline of foreign investments in U.S. real estate, but towards the end of the year this all began to change. Looking at today’s statistics, foreign buyers and recent immigrants accounted for $153 Billion of residential property purchases between April 2016 and March 2017, which was an increase of 49 percent from the previous year. This makes up 10 percent of the total volume of existing home sales.
Because the Canadian dollar wasn’t seeing the significant increases earlier in the year as it has shown this summer, we can only predict that the year over year increase in foreign investments will be even higher for 2017.
Lawrence Yun, the chief economist for the National Association of Realtors, suggests that the rise in home purchases from Canadian investors has a lot to do with the lack of affordable properties in their home country. Meanwhile, Canada currently takes the second largest piece of the investment pie when it comes to foreign home purchases in the U.S., second only to Chinese investors.
The Impact of the Canadian Dollar on Coachella Valley:
Following a few years of lower activity from Canadian investors, The National Association of Realtors (NAR) has also released data that California has the second highest amount of foreign buying activity, second only to Florida. With an overall increase in Canadian real estate investments in the U.S. this year, California is surely seeing the impact.
But what about Coachella Valley? Will the region be affected by buyers from Canada as it once was, especially with the rise in value of the loonie?
Coachella Valley saw a huge boom of investors from 2007 to 2013, when the Canadian dollar fluctuated as much as 25-30% relative to U.S. dollar and the loonie was worth as much as $1.05 USD all while Americans were still recovering from the housing crisis. With home prices growing in Canada, Canadians knew they could make sound investments in the U.S. while getting a bit more bang for their buck on the conversion rate, and securing a warm destination to retreat during their frigid winters – we may be headed for those times again!
The market has experienced the opposite effect the last couple years with Canadian home owners selling off their properties to take advantage of the weakened loonie (gaining as much as 25% on the exchange). We believe, however, there is a possibility Canadian investors start to consider the valley again as we see oil prices increase and the subsequent strengthening of the loonie this year.
With more interest rate hikes from the Bank of Canada likely on the horizon for our friends to the north, and Canadian home prices that have declined by about 10 percent since April, foreigners will be looking for investment opportunities here in the U.S.
If home values in the Coachella valley continue to appreciate, the market conditions will set up nicely again for our Canadian friends to take advantage. Home sales are up 1.5 percent year over year in the valley, and prices have crept up a whopping 8.5 percent. Interest rates remain low, which is attractive to Canadian investors still sweating from the Bank of Canada’s summer decisions.
For Canadian buyers looking to make a quick trade or a long-term investment, Coachella real estate may again be the answer. With low inventory pushing home prices up and the Canadian dollar continuing to strengthen, Canadians will be once again looking to Coachella Valley for their investments.
This is good news for Coachella residents and potential home buyers looking to maximize their own investments or benefit from increased home values.