Releasing the full findings from its 2008 National Association of Realtors (NAR) Profile of International Home Buying Activity, Canadian in particular are taking advantage of the current soft U.S. real estate market by buying vacation property or second homes. Percentage of Canadian buyers doubled from last year, from 11 percent to 23.5 percent - now the biggest foreign buyer market in the U.S.

The NAR report also finds that “64.4% of Canada buyers plan to use their U.S. homes for vacation purposes. On average, foreign purchasers plan to stay in their U.S. property 2.6 months of the year. A third intend to use the U.S. home a total of 3 to 6 months”.  Condominiums were popular among foreign buyers from Canada: nearly half of all properties purchased by Canadian buyers were condominium/apartments.

Foreign exchange rates have helped keep US homes more affordable, the value of the U.S. dollar as compared to foreign - especially Canadian and European currencies has dropped over the last several years. The effect net when combined with lower U.S. home prices, means that the true cost for a U.S. property is actually less in foreign monetary terms than in previous years.

Although it is still seen as a healthy number of international buyers entering the market to supplement the declining domestic sector, the faltering markets in the UK and Europe have had an impact on the amount buying in the US this year – predicted to be far higher then current figures would suggest.

Of the 4,000 US-based agents surveyed between May 2007 – May 2008, some 26 percent served international clients in the past year and nearly half of those clients ended up purchasing a home. The primary reasons some clients did not eventually buy a house were home price concerns, immigration laws, and property taxes. “If visa regulations that favor longer stays for overseas buyers such as retirees from abroad were in place, these sales levels would be even higher,” said Tony Macaluso, 2008 chair of NAR’s international business group.

“Many international buyers recognize that real estate is an excellent investment and are drawn today by abundant inventory, low interest rates and a softer dollar. These conditions allow them to own their own a piece of the American dream,” said NAR President Richard Gaylord.

Foreign buying trends in USA
May 2007 – May 2008: Source NAR
- 150,000 – 190,000 properties sold to international buyers
- Florida, California Texas. Arizona, New York, Washington, Nevada – most popular locations
- 14% of foreign bought property cost over $750,000
- Average foreign purchase cost $297,000
- 40% of buyers paid in cash
- Canada, UK, Mexico, China, India and Germany most active buyer markets
- Percentage of Canadian buyers doubled from last year, from 11% to 23.5% - now the biggest foreign buyer market in the US.
Source: NAR

Many savvy international real estate investors are aware of the soft US real estate market right now. Almost every real estate property website and newsletter is filled with hundreds and thousands of bank foreclosure listings.  Many of these listings are in top vacation states or in highly desirable parts of the country. At these deeply discounted prices, one may even consider purchasing one of these properties as a second home or as a vacation rental home for long term investment purposes. But with thousands of websites advertising bank foreclosure properties, beware of the many new foreclosure scams.

Many of these scams prey on suffering homeowners with currently devalued properties. But as a potential investor, the “Bailout” scam is one to look out for.  In this scam, the “Rescuer” gets the desperate home owners to surrender their title to the house, convincing them that they are making a deal to become a renter and will buy back the home over the next few years. Homeowners, are told that someone with better credit can secure new financing to prevent the loss of the property, are cajoled into surrendering the title.

The “Rescuer” then lists the property on the market and sells it to unsuspecting property investors. By this time, a buy back becomes impossible for the original homeowner for they have permanently lost possession, and the “rescuers” leave with all or most of the home’s equity. The property investor now holds title to the dream rental income property, but is stuck with an unwanted tenant that has little chance of fulfilling monthly rental fees and potential litigation costs.

There is no one better to safeguard your future investment than yourself. Doing your research and working with reputable advisors is the best defense against fraudsters.

From state-of-the-art fitness centres to private trolleys to the beach, new condo developments have it all

Canadians interested in buying a second home in the U.S. should certainly consider taking advantage of today’s market, says Sherry Cooper, chief economist for BMO Capital Markets.

Although the Canadian dollar has fallen off a bit from its high of $1.10 (U.S.) back in November 2007, it’s still strong at around $0.93 [as of Sept. 9, 2008]. Combine that with the drop in U.S. house prices and you get a good market for homebuyers, notes Cooper, who recently bought her own vacation property in Sarasota, Fla. 

“But you can’t time the markets exactly,” she warns. “Home prices in the U.S. may continue to fall until mid-to-late 2009.” 

Cooper cautions against buying on impulse and advises taking the time to do some careful research. In her case, the Sarasota area was familiar ground because her mother had wintered there for many years. The bottom line: No matter how good a bargain, it will only be a great buy if it ends up being what you truly wanted.

-The Toronto Star (September 27, 2008)

You’ve decided to purchase property in the U.S. What next? Unless you’ve saved up enough to pay cash, your first step is to arrange financing. 

And despite all the news about the U.S. mortgage meltdown, it’s still possible to arrange a secure mortgage on a U.S. property. 

Although most Canadian banking institutions don’t lend money to private investors wanting to buy U.S. real estate, they likely have a U.S. banking affiliate that does. BMO Bank of Montreal, for example, directs clients to its U.S. subsidiary, the Harris Bank, which based in Chicago. 

The process for Canadians to obtain a mortgage on a U.S. property is quite simple, says William Mies, district sales manager of mortgage sales for Harris Bank. Your application can actually be done over the phone through the bank’s team of mortgage specialists who will request the following:

•your credit report
•your income and assets 
•your employment history 
•two years of T1/T4 tax forms 
•two months of bank statements 
•a current mortgage statement (if you have a mortgage) 
•a signed purchase contract (if you’ve made the purchase)

According to Mies, you should expect to pay a minimum down payment of 20 per cent of the purchase price for a home that’s to be occupied as a second home, and 30 per cent for a home that’s to be used as rental property. He also says that you will likely be charged a .25 percent premium over the prevailing U.S. rate for the same mortgage product.

For example, if a mortgage is offered to U.S. citizens at 5.875 percent, Canadian citizens can obtain the same product at an interest rate of 6.125 per cent. Harris Bank provides only adjustable-rate mortgages to Canadians, but these mortgages do provide an initial fixed-rate period of either one, three, five or seven years.

Mies advises potential borrowers to carefully assess their short and long-term financial goals, as well as their payment and equity objectives before choosing a particular loan. “While longer terms traditionally carry a slightly higher interest rate, the difference at the moment is negligible,” he notes. “And longer fixed-rate terms are always the safer way to proceed for security.”

-The Toronto Star (September 27, 2008)

Learn more about Harris Bank Mortgages