Strong loonie good news for real estate market

The Canadian dollar — called the loonie because of the bird shown on the face of the dollar coin — is expected to stay strong compared to the U. S. dollar for the rest of the year according to Bank  of Montreal Chief Deputy Economist Douglas Porter.

“We believe it is likely to remain firm through 2011 with further gains possible if commodity prices continue to forge ahead,” Porter told Marketwire at the end of January.

That’s great news for Maricopa because Canadian buyers have been a chief prop of the city’s housing market. Bad as things are, without a growing influx of Canadian investors, they would be much worse.

“The strong loonie definitely has an impact on the number of Canadian buyers,” said Maricopa Real Estate Co. agent Bill Wasowicz. “We have seen a larger increase of Canadian buyers recently compared to previous years, and I would say that well over half of our Canadian clients mention the loonie’s valuation when talking about their decision to buy here.”

Simple math
Canadians surpassed Californians as the top out-of-state buyers of Phoenix-area real estate in 2010, in part because of the growing strength of the Canadian dollar. The loonie achieved parity with the dollar for the first time in years in 2010 and by mid-February 2011 it was worth slightly more than its U.S. counterpart. The U.S. buying power of the Canadian dollar has increased by more than 20 percent over the past two years.

For example, on Jan. 1, 2009, an $80,000 house in Marciopa would have cost a buyer from north of the border $100,000 Canadian. Today, for that same $100,000 Canadian, a buyer can purchase a house in Arizona priced at $101,500. Since Maricopa home valuations have fallen by more than 20 percent during the same period, Canadian buying power is up more than 40 percent overall.

“The increase in the spending power of the loonie has a direct correlation with the increase of Canadians coming into Arizona and purchasing homes,” said Malcolm MacEwen, president and COO of Coldwell Banker Residential Brokerage, Arizona.

Strong economy equals strong dollar
The strength of a nation’s currency is directly related to the health of its economy, and Canada’s economy has done better than the U.S. economy in recent years. Because its banking system is more tightly regulated, Canada did not fall as deeply into the morass of the sub-prime mortgage and financial derivatives fiasco that nearly destroyed the American banking system. Consequently, the foreclosure crisis is milder in Canada and its mortgage and housing industries are in better shape.

In addition, Canada has benefited from strong worldwide demand for its commodities, such as iron, coal, gold and oil. It has the largest oilfield outside of the Middle East and the second largest reserves of natural gas in the world. Commodity prices stayed strong during the recession because of continuing growth in China and India and now, with the world economy recovering, commodities will likely go higher, further strengthening the Canadian economy and dollar.

According to The Economist, Canada’s 2010 federal deficit was only 4.5 percent of gross domestic product compared to 8.9 percent of GDP in the U.S. Unemployment is lower north of the border and growth is stronger.

All of which is good news for anyone wanting to sell a house in Maricopa. As long as Canada continues to be one of the world’s leading economies, the loonie is likely to gain strength against other currencies, giving Canadians increased buying power and incentive to purchase homes in Arizona.