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What Does The Current Canadian Housing Situation Mean For U.S. Real Estate?

Written by Paul Esajian

While Canada appears to have avoided a downturn in their housing sector for years, the data is starting to suggest a slight regression is in the foreseeable future. That said, multiple factors are now working against the Canadian property market. The heavily oil-reliant economy is feeling the blues from recent price crashes and Obama’s refusal to promote the Keystone XL pipeline. As a result, forecasters predict the Canadian dollar is set to plunge to 59 cents. Banks are raising mortgage rates while the government is instituting new, tougher regulations — forcing buyers to come up with larger down payments. A lack of long-term fixed mortgage rates and heavy household debt is a big government concern. Warnings of overbuilding in major cities have been blasted for years. Now it appears condo building may be slowing, while some pockets of the country are reporting property values falling by $150,000.

Canada could still turn it around, but it will require a lot of things to fall the right way. In the long-term, Canadian property will likely be a good investment. However, in the short-term, and with a major stock downturn in play, it could get worse before it gets any better.

Will Canadians Pull Out of the U.S. Property Market?

After investing in the U.S. property market for years, Canadians are starting to see equity pay off. That said, many could potentially cash out to help on the home-front. They might see the need to cash out, especially with the U.S. dollar being much stronger than the Canadian loonie. This could certainly create a great opportunity for American real estate investors seeking motivated sellers. Some of these leads may even turn out to offer bulk deals.

Increasing Canadian Investment in the USA

It may be more likely that we’ll see more investment south of the border, as a result of a plunging Canadian property market. In fact, in addition to major Canadian pension funds investing heavily in New York, other sizable asset managers have been liquidating Canadian property and positioning themselves to by American real estate. This could be one of the biggest years for Canadian flight capital pouring into the U.S. yet. Many will prize the safety of capital in the U.S., in addition to appetizing yields. This money may flow into prime commercial properties and residential rentals.

The Vacation Rental Market

I wouldn’t be surprised if the vacation rental market in America took a hit because of the allegedly impending Canadian downturn. A lot of Canada’s investors look to vacation rentals to escape the frigged winters up north. This may include many cities in Florida, as well as New York City, and Phoenix, AZ. If they don’t have money to come on vacation, they are not going to be filling seasonal rentals via Airbnb. Fortunately, the economic situation up north may encourage more Canadians to retire in the U.S. earlier than anticipated. Look for opportunities to cash out those rental properties while interest rates are low.

Trend Reversals

When the U.S. crisis kicked in, many Americans and American companies headed north. They found better retail sales performance and jobs with good wages. With those opportunities drying up, we could potentially see more people returning to the United States, and perhaps a fair number of Canadians in search of work, too. The influx of people could certainly boost the current housing market, as sellers should witness more buyers actively looking to purchase a home.

Canada has also been one of the favorite real estate investment destinations for international investors over the past seven years. Many may switch their focus south of the Canadian border. After all, even more so than Canada, U.S. real estate is incredibly attractive and relatively safe. We have already seen Chinese investors flock from their current situation to invest in U.S. real estate. Why not Canada?

Hopefully Canada will escape a repeat of the U.S. crisis, but like I said before, things will get worse before they get better. However, the side effects may be very beneficial for the U.S. economy, housing market, and investors looking to buy and sell more property in 2016.