-- Canadians — who recently ranked as the No. 1 foreign buyers of U.S. homes — have curtailed purchases in recent weeks because of a rapid decline in the strength of the Canadian dollar, Realtors in both countries say.
Canadians accounted for 23.6% of foreign buyers of U.S. homes in the 12 months ended in May — double the percentage of the prior year — a recent report by the National Association of Realtors said.
The Canadians were driven by the strength of their dollar. It reached parity with the U.S. dollar for the first time in three decades in September 2007 and remained above or near the even mark until last summer. But since Oct. 1, it's down 11% and is now worth 86 cents, nearing 2005 levels.
That's reduced the buying power of Canadians and made U.S. homes less appealing to them despite much lower prices brought on by the USA's foreclosure crisis.
At the same time, fewer U.S. lenders are doing home loans for foreign buyers, and some are requiring heftier down payments.
"There's definitely been a slowdown," says Re/Max Realtor Trevor Matheson in Edmonton, Alberta. "For a while, there was a big influx of Canadians into the U.S. for foreclosed properties."
Florida landed a third of Canadian purchases in the 12 months ended in May, followed by Arizona at 27%, the NAR said.
Phoenix Realtor Mark Dziedzic says his Canadian clientele has fallen 30% in the past several weeks. He expects it to bounce back once buyers digest the events of the past month and look again at depressed U.S. home prices. "We had a full year of a flurry of buyers. A bit of this panic is short term."
Nataly Lessard, Realtor with Coldwell Banker in Fort Lauderdale, specializes in Canadian clients. While fewer are looking, she says, more are convinced that it's time to buy, given signs that prices in the region may have bottomed.
Foreign buyers are estimated to account for only a tiny percentage of U.S. home sales. But they're a bigger factor in vacation hot spots, such as Florida, Arizona and California. The NAR, for instance, found that foreign buyers accounted for 7.3% of Florida home sales in spring 2007.
The NAR's most recent report said foreign buying had decreased from the previous year.
But Canadians "made a huge leap" because of the strength of their currency, says Lawrence Yun, NAR senior vice president. That currency has since suffered as oil prices plunged and the economic malaise that gripped the U.S. spread worldwide.
The NAR report notes that Canadians are famous for paying cash — almost 70% vs. 43% for foreign buyers overall. Even so, tighter lending standards are derailing some buyers, says Diane Watson of Realty Executives in Scottsdale, Ariz.
One of her Canadian clients had a pool of buyers looking to buy 10 condominiums with 20% down. Lenders have said they'll only lend on single-family homes with 40% down, she says. "The buyers were ready to go. Now they're reconsidering," she says.
Phoenix mortgage broker John Coats of On Q Financial says he has one lender doing loans for Canadians. A year ago, he had seven. He says lenders fear that foreign loans will make them look too aggressive, an image they shun given the loose lending practices that preceded the USA's real estate meltdowns.
"The pendulum has swung too far the other way," he says.