Arizona holds a special place in the hearts of many Canadians looking for warmth, rugged scenery, and friendly people. Yet, 2020 has brought many newfound pressures to Canadians from several fronts, not the least of which is the difficulty—and uncertainty–of a cross-border lifestyle in the new COVID-19 era.
Combine that with a drastic imbalance between the strength of the US Dollar and the fact that US housing values are flying high compared to Canadian values.
Many conservative Canucks are choosing to strategically retreat, at least those who believe in “sell high / buy low.” Indeed, many Canadian owners are selling their beloved winter residences, but with the thought that there will be a more opportune time in the future to, once again, enjoy their (new) place in the sun.
Transportation is one area causing a degree of inconvenience, if not additional costs. Candian air travel routes are currently reduced by 95%, and even in the fall of 2020, it is anticipated they will only return to 20% capacity, (CBC.ca May 23, 2020). In addition, traditional routes will likely not fully recover for two years.
These changes have brought much longer flying times, with layovers in places like Los Angeles’ LAX airport, arriving in Phoenix after a protracted 11 hour flight time. This doesn’t even address the risk and fear of being exposed to coronavirus during this odyssey.
CROSS-BORDER HEALTH INSURANCE COVERAGE
Health insurance coverage is another risk of travel. Canada’s health care system will only cover citizens traveling outside the country for a maximum of 3 days (February 27, 2020 USAToday). Canadians normally purchase extended travel insurance, but COVID-19 is not a covered illness with these supplemental coverages.
IMBALANCE BETWEEN CURRENCIES
So what about that imbalance of the American and Canadian dollars? As of this writing, $1,000 USD is worth $1,366 CAD. This means that real estate converted in the US provides a great buying opportunity for Canadians in their home country. The Canadian housing market has seen low –or even negative- appreciation in housing over the past two years but is expected to reverse dramatically as inventory has fallen.
According to the Canadian Real Estate Association, the drop in inventory, due in part to immigration, will lead to a price rebound and an anticipated rapid appreciation of real estate values in many areas. (March 29, 2020 Global Property Guide.com)
CONSIDERING CAPITAL GAIN TAXES
Of course, the sale of property in the United States by a foreign national is subject to a capital gain tax rate of anywhere from 0% to 20% for assets held more than a year, or a bit higher if held less than a year. The Foreign Investment in Real Property Tax Act requires—in most cases–that a withholding be made upon close of escrow to ensure the proper tax is paid upfront to the IRS.
CURRENT HOME PRICE INDEX
Those owners wondering about the appreciated value of their Arizona home can lean into The S&P CoreLogic Case-Shiller National Home Price Index, which measures the change in the value of the U.S. residential housing market.
In April 2020, the Phoenix price index was at 206, despite the fact that an economic recession is indicated to have been born in February of this year. Compare that to the Index in April 2010 (110) or April 2015 (150.46) and it’s pretty clear than anyone who has owned their home in Maricopa County for more than a few years has a pretty fair opportunity of a return far in excess of the capital gain tax rate—some handsomely more than others.
Alas, inventory in Maricopa County is at record lows. To learn more about the value of your home and the opportunity you have to capitalize on your investment in Scottsdale, Fountain Hills and Rio Verde, contact us at RE/MAX Sun Properties, 480-837-9801, or find us online at SunPropertiesAZ.com.