America’s Next Crisis Could Be Great News For Canadian Property
While the US may still be a top pick for international real estate investors, concerns and cracks in the market are already piling up. A new American financial and housing crisis could be great news for Canadian property investors.
New data from the New York Times reveals that residential property sales in NY have fallen by as much as 17% in 2018, with sales prices down at least 7.5%. That follows news of declining residential rents in once sizzling hot San Francisco. While many investors may still be choosing to keep the blinders on and ear plugs in, there may well be a lot more to this iceberg under the surface.
US real estate prices may have already surpassed a new peak. Yet, there are many other fundamentals which could easily accelerate this new trend, in addition to the fear that will eventually set in. The property tax burden has been growing much larger for US property owners, especially in states like NY. New legislation has stripped tax breaks, while some cities have seen annual property taxes rising by 17% or more. That is eating away at already lean returns and cash flow. New online sales taxes could cramp businesses and incomes even further. Rising interest rates, which may see two more hikes in 2018 are expected to make US housing far less affordable, while shocking commercial property owners who have maturing loans.
What happens when the first domino falls? History is great at leaving clues as to how these things play out. When the American property market falls investors look for other countries which are still performing better. They’ll sell, cash out and look to invest elsewhere, fueling gains in other areas.
Historically, Canada has always been a top choice for foreign investors and global capital. It offers familiarity in language, a sound government and legal system, comfortability in the buying process, and long term strength. Those are big stand out benefits versus exotic locations that boom and bust more dramatically and which may become more frequently advertised as the market turns.
The US economy still seems to be flourishing for now. Yet, these cracks and other fundamentals which are likely to compound this trend are strong signals for US investors to be alert to. As this progresses, Canadian property should only become more attractive and magnetic to international investors. Especially, cash flowing, passive income investments in commercial real estate that can provide solid returns and hold value even when stand alone housing doesn’t.