ALL PHOENIX REAL ESTATE

Posted on November 14th, 2007 by Jonathan Dalton

Solve:

“2x + 4y = 20″

Editor’s note: I can’t do it. My 15-year-old is working on intermediate algebra graphs of similar problems and I can’t remember how to pull it off anymore. But that’s not really important right now.

For Canadian buyers looking at purchasing real estate in Phoenix, whether as a winter home or an investment (or both), you’re having to solve two variables as you analyze the pricing equation.

The first variable, obviously, represents local home values. All real estate is local and even analyzing Phoenix isn’t local enough. Many of the active adult communities started with somewhat lower prices, never ran as high as neighboring subdivisions and are declining to a far lesser degree than those areas adjacent.

The second variable is the volatility of the U.S. dollar versus the Canadian dollar. Here’s a chart outlining the decline of the U.S. dollar compared to the loonie this year:

… and let’s start with the basic assumption that we’re purchasing a $200,000 home.

Earlier this year, the U.S. dollar was worth as much as $1.20 Canadian. So for someone living in Canada and looking to purchase stateside, that $200,000 home would have cost $240,000 Canadian.

When the loonie reached parity in September, that same house would have cost $200,000 either U.S. or Canadian.

A week or so ago, with the U.S. dollar worth roughly .91 cents Canadian, the same house would have cost $182,000. And with yesterday’s close of the U.S. dollar somewhere around the .94 mark, the same house would be $188,000.

From high to low there’s a swing of $58,000 on a $200,000 home - that’s 29%. Phoenix real estate prices, with the exception of some outlying areas of Pinal and Maricopa County, have not experienced a similar swing. And, with the U.S. dollar beginning to gain a little bit of strength, apparent values as determined by actual cost are rising, not falling.

Many buyers from the territories have expressed a concern that home values here in the Phoenix area may continue to decline. That remains a distinct possibility. But a change in home price is going to have far less impact on what a Canadian buyer can purchase and what they’re going to pay than the gyrations of the exchange rate.

Let’s assume that same house declines 5% to $190,000. But at the same time the U.S. dollar returns to parity against the Canadian dollar. You would be paying $2,000 more for the same house after the decline than if you purchased under current conditions. Even if the home’s market value fell 10%, you’d only be saving $8,000 on a $20,000 decline solely due to the different exchange rate.

One of my Canadian clients starting moving money around last week in advance of a house hunting trip this week. One week of preparation resulted in 3-4% savings because of the since-risen exchange rate.

That is the variable most worth keeping an eye on going forward, my Canadian friends. That is where the true volatility rests and that’s where your buying power is being set.

Purchasing in Phoenix or elsewhere still isn’t for everyone, just as any real estate purchase is not for everyone. It depends on your circumstances. If you’d like to chat further, send me an e-mail or become my daily Canadian caller and I’ll be happy to help.

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Categories: Phoenix Market, General Real Estate, Tips for Buyers