A two-bedroom second home in the warm desert is still an affordable deal for many Canadians living in wintry, expensive cities.
In Vancouver, B.C., an average home often tops $1 million, roughly two to three times more than a similar pad in the Coachella Valley. The allure of a desert getaway tucked by exotic palm trees will continue to draw Canadian buyers to the valley this tourist season, local real estate professionals say. That’s despite a flip in the U.S.-Canada exchange rate, which saw the Canadian loonie drop in value against the dollar over the last year — making American homes slightly more expensive compared to previous years.
To make up the difference, more Canadian buyers are borrowing mortgages instead of paying all-cash, as they typically did during the recession, industry experts say. “We’ve seen since the exchange has shifted that more Canadians are looking for financing options,” said Janine Terracciano, a senior manager at Royal Bank of Canada, a national lender dedicated to cross-border real estate purchases. “They’re still actively looking and do want to have secondary homes. It’s still relatively low as it relates to Canada.”
One U.S. dollar currently equals about 1.13 Canadian loonies. It’s a sharp change from last year, when the Canadian loonie was worth slightly more than the dollar. Second home and investor purchases in Southern California recently fell to their lowest point in four years, according to the Irvine real estate research firm CoreLogic DataQuick. They accounted for 23.6 percent of homes sold in October across the six-county region, down from 27.1 percent during the same month a year ago.
Fewer buyers are also paying in cash, too. Just less than a quarter of Southern California home sales in October were paid in cash, down from 28.6 percent last year. But local real estate agents say they don’t anticipate a drop in Canadian home-buying in the desert. Bob Ford, a Palm Desert-based broker of Ford Properties, says 40 percent of his sales comes from Canadian buyers. The rest come from Pacific Northwest domestic cities such as Seattle and Portland, Oregon. “They’re (Canadians) always a big part of our business,” Ford said. “We have a lot of Canadian members.” Ford’s real estate company partners with Ironwood Country Club, a 1,100-unit development that frequently markets to Canadians. Homes for sale in the 800-acre Palm Desert community range from $200,000 to $4 million and don’t require club membership, Ford said. One of his listings is a two-bedroom home asking $398,500.
Canadian buyers typically buy two-bedroom second homes around $350,000, said Margaret Denneny, Sun City Realty agent. About 20 percent of her business comes from Canadian buyers looking for space in the Sun City Palm Desert gated community for adults ages 55 and older. “They’re not looking into the big, big homes,” said Denneny, who is from Ottawa, Canada. In September, the median price of an existing single-family home in the Coachella Valley was $258,000, according to CoreLogic DataQuick.
In 2013, Canadians bought 98 percent of home sales that had a foreign mailing address, a CoreLogic DataQuick analysis of public property records shows. They purchased at least 923 homes last year, outweighing the handful of buyers from the United Kingdom, Germany and Japan. Even though their currency is worth less, some Canadians are buying desert properties to hedge against possible further decreases, said Tim Briggs, a Palm Desert-based agent who partners with his wife Laurie, also an agent. Both are originally from Canada. “It’s diversification, to have an investment in an American home,” Tim Briggs said. Some Canadians canceled desert vacations and held off on making purchases earlier this year, said Laurie Briggs. But as the gap between the dollar and loonie widened, one of her clients sold a sailboat and recreational property in Canada to buy an investment property in the desert, she added.
Ashley Rice, a resident of Edmonton, Canada, recently bought a home in Oceo Palm Springs, a midcentury modern community of townhomes and single-family homes. Rice’s two-bedroom home is currently being built and comes with solar power, a pool and separate casita. It’s not far from a coffee shop, a restaurant and downtown Palm Springs. Rice took out a mortgage, and says the exchange rate increased her monthly mortgage payments. It will also affect what she can pay for furnishings. She estimates total costs will be 15 percent higher than what it was a few years ago. But she believes the property will be worth its value down the line. “We wanted to think ahead to the future,” Rice said. “Rather than investing savings in mutual funds or savings accounts, it was better to be prudent to invest in property, and at the same time, we can use it.”
Other Canadians saw property values rise on desert homes that they bought for cheap during the recession. The appreciation created new equity that some are thinking of re-investing in a bigger house to entertain friends and family, Laurie Briggs said. Financing options were scarce for Canadians during the recession. A few banks offered loans but had strict limits, such as requiring a 50 percent down payment for only home purchases more than $600,000, Briggs said. “If they go to a normal U.S. lender, they’re going to be treated as a foreign national if they can even get a mortgage,” said Terracciano, who is based in Florida but has clients in the valley. Royal Bank of Canada can look up a Canadian’s credit history and tax returns and won’t charge a foreign national premium fee that can add 1-3 percent to a mortgage rate, Terracciano said.
Most Canadians visit the desert in October and November, head home for the holidays and return in the New Year. Agents predict they’ll see more Canadians buying homes in the first quarter of next year. “There’s still a strong interest on the part of Canadians getting into this market,” Tim Briggs said.
Dominique Fong is a business and real estate reporter for The Desert Sun. She can be reached at (760) 778-4661, [email protected] and on Twitter @dominiquefong.