Article Tools
Attention, real estate shoppers: the entire U.S. sunbelt is now officially on sale. Prices in many areas of Florida, Arizona, Nevada and California have dropped 40% from their peaks of a couple of years ago, to the point where the deals seem nearly too good to be true. In Naples, Fla., a three-bedroom, two-bathroom home that sold for $350,000 in 2007 is on the market for only $200,000. A starter home in Sacramento, Calif., that sold for $215,000 in 2004, is on offer for a mere $129,000. And remember: these aren’t sale prices. They’re asking prices.
Are these apparent bargains really as attractive as they appear? Sandra and Pat Parente of Richmond Hill, Ont., scouted condos in Fort Lauderdale, Fla., in March of this year. Their eyes lit up when they saw a handsome two-bedroom, two-bathroom unit only steps from the beach. It had been listed this past October for $239,000, but had since been reduced to $199,000. “My immediate thought was, ‘Wow, this is fantastic,’” says Sandra, who works as an advertising executive in Toronto. “It needed a bit of sprucing up, but there wasn’t anything that needed urgent attention. It had a green area all around it, and a pool, and we saw it as a great way to get into the Florida market.”
The Parentes’ wariness is justified, say real estate experts. Many believe we’ve seen just the beginning of a monumental real estate collapse. “The size of the U.S. real estate bust on the way down will be proportional to the size of the real estate boom on the way up,” says Robert Campbell, a real estate economist in San Diego, Calif., and author of Timing the Real Estate Market. “There’s no slowing down this train. The areas that had the biggest booms will have the biggest bust. Prices are heading lower — way lower.”
Campbell points to many negative factors, including the galloping rate of foreclosures, which are running at record levels across the U.S. Those foreclosures are adding to a glut of homes on the market. To put the situation into perspective, consider that a three- to six-month supply of homes for sale has historically been considered typical for most markets. But in the Miami-Fort Lauderdale area, the supply of single-family homes and condominiums for sale is enough to last for 34 months. The backlog is 21 months in Orlando, 18 months in Tampa and Las Vegas, and 14 months in Phoenix. Meanwhile, even more units are coming on the market as builders finish the projects they started in better times. “Builders are offering huge incentives and lease-back programs,” says Mark Dziedzic, president of Arizona for Canadians, a real estate firm that specializes in helping Canadians buy second homes in Arizona. “Here in Arizona, some will guarantee you rent of $1,500 a month for two years on any property you buy, while others offer huge discounts on sale prices. The competition is tremendous.”
For Canadians, all of this means that there’s absolutely no reason to rush into the market. “On a pure timing basis, Houston is the only place in the U.S. you want to buy right now,” says Campbell, who has spent 35 years following real estate trends in the U.S. He believes some states will bottom out in a year or two. Others, such as California and Florida, will have to wait three or four years before prices hit bottom. “I know Canadians will be saying to themselves ‘ look what we pay here in Canada’ and compare it to what they can get in the U.S.,” says Campbell. “But don’t look at prices relative to where you are. Instead, look at prices relative to where the real estate market is in the U.S. My data shows that the year 2011 is when most real estate markets will finally find bottom.” Even then you should be careful. Before putting down a penny, take a moment to learn about property taxes, rental restrictions and other bits of fine print that can undermine your dream place in the sun. You should:
SWEAT THE SMALL STUFF Some states abuse out-of-state home owners. Of course, real estate agents don’t tend to mention this when they’re showing you sunbelt properties. As a result, many Canadians get a nasty surprise when they scoop up a bargain property only to find themselves stung by unexpected expenses.
Florida plays the most aggressive game of pin-the-bill-on-the-foreigner. State law allows Florida municipalities to impose different property taxes on out-of-staters than on in-state residents. So if you buy a property from a Florida resident, don’t be surprised if the tax bill on a property triples or quadruples. You can wind up paying $9,000 or more in property taxes on even a modest condo.
And that’s not the end of it. Florida and California homeowners pay sky-high rates for property insurance because of the frequency of hurricanes, tornados and earthquakes. Buy a home in one of those states and you may have to pay several thousand dollars a year for insurance coverage — and that’s assuming you can get it. “In Florida, because of the hurricanes, there are certain areas that are deemed extremely high risk by the private insurance market and as a result, they do not want to take on new insurance clients,” says Lawrence Barker of the Canadian Snowbird Association. “But if you don’t have private insurance on your vacation home in Florida, and it’s wiped out in a Hurricane Katrina-like situation, then you’re done.”
Arizona offers a much better deal to out-of-state residents. Expect to pay $1,000 or so in annual property taxes on a $200,000 property. Insurance rates are also relatively low. As a result, many Canadians are selling their vacation homes in Florida and purchasing property in Arizona instead, says Barker.
TEST THE WATERS “There’s more to buying a vacation home than price,” says Barker. “Rent for a couple of years to make sure you enjoy the lifestyle in a given location. Don’t go thinking that a place is perfect for you just because its price has dropped.”
David and Cheryl Burwash of Ottawa spent 10 years vacationing in Carefree, Ariz., before finally taking the plunge this spring and buying a two-bedroom, two-bathroom home in the community. “We asked ourselves where we wanted to be in five to seven years,” says David, 51. “After all the time we’ve spent here in this area, we knew it well and felt comfortable making a commitment. We love the fact that hockey, basketball and baseball games are $20 for a half-decent seat. There’s no humidity, no bugs and good wine for sale in the local grocery stores. It was the right choice for us.”
Rate this article
