Top 4 Reasons Why Now Is The Best Time For Canadians To Buy Real Estate In Phoenix

Introduction

There hasn’t been a better time to buy real estate in Phoenix, Arizona since the market crisis in the late 1980s. Due to a convergence of critical factors, Canadians are now poised to profit more than in any other time from the current market downturn in Phoenix.

There are 5 critical reasons why now is the best time for Canadians to buy real estate in Phoenix. This window of opportunity won’t last long as these 5 compelling factors will begin to disappear and it is the convergence of these problems that create the greatest opportunity.

We will outline the why in detail and show you how to get started.

Reason #1

Phoenix housing market is crisis due to the sub-prime mortgage meltdown. Phoenix was overbuilt in 2004-2006 because of waves of investors that flew into town trying to make a buck. The problem was compounded when anyone could buy a home and get a mortgage because of the lax lending practices at that time. If you had a pulse and could fog up a mirror, you could get a loan! The problem? Investors were buying at the height of the real estate boom hoping prices would keep rising. “Buy High Sell Higher”, hardly ever works and most of them are now panicking with prices falling and lenders tightening their belts.

At the height of the craziness in 2004 and 2005, investors were being driven around to new home subdivisions in buses and buying new homes to be built. The rationale? That because prices were increasing so rapidly, by the time the home was finished, it would be worth $50,000 - $100,000 more!

This actually worked for a while and some investors made a lot of money doing this. Unfortunately for most, greed took over and investors bought multiple houses due to lax lending practices. Then, when the market started to soften, all those investors were stuck with homes that were not appreciating fast enough to keep their heads above water. Over the past 2 years, thousands of real estate investors have walked away from millions of dollars worth of earnest money deposits because they could not justify closing on depreciating homes. The builders were left with thousands of new homes completed and no buyers which caused a further glut in the marketplace. There are subdivisions now across the Valley where you will find for-sale signs lined up and down the streets on vacant properties that are either owned by investors that did not get out in time or builders who got stuck with the properties after their buyer’s failed to close. Most of those properties have been turning into short sales, bank foreclosures and REOs (bank owned).

The good news? This downturn is temporary – more temporary that most other places in North America. Why? Because people still want to move here for the climate, jobs and quality of living. Phoenix is still one of the 2 fastest growing metropolitan regions in the country – even with a bad real estate market and slowing economy. People are still coming! Once the investor backlash is absorbed by the population growth, our real estate market will start the inevitable trend back up! Deals available today will not be available in 6 months as new home inventory, bank foreclosures and short sales are sold off.

When is the bottom going to be and when will the market turn around? No one knows this with certainty. If someone did, they would have a crystal ball and all the winning lottery numbers. Just as people don’t know when the top of the market will be reached (greatest fool theory), no-one really know when things will turn around. The most important point is not to be paralyzed with indecision waiting for some magical event to happen before you buy or you will miss the boat of opportunity.

There is no way to know for sure when absolute bottom is reached nor is it important. As long as you get on the ride NEAR the bottom. We may be in that phase right now (I can’t say for certain either because I’ll admit it….I’m not a prophet either!).

So take advantage NOW, while the real estate market is floundering near the bottom and don’t get caught up in the elusive game of trying to time the market bottom exactly right because it is, well……impossible!

Reason #2

The cause of this market downturn has created incredible bargains through bank short sales and foreclosures allowing the savvy investor to purchase property even below already fallen current market values in certain areas. Additionally, because thousands of buyers walked away from new homes under construction, new home builders were left with a glut of spec homes. To clear this problem from their books, many area builders are now offering massive discounts to get rid of spec home inventory. Many have dropped prices below what it cost them to build the homes just so they can get rid of them and move on. Once this glut is sold off, the discounts will disappear – we already see this happening in some areas where the builders are almost sold out. There is a small window of opportunity left in some areas to take advantage of massive homebuilder discounts - sometimes more than $150,000 in some areas!

While dealing with banks may be tedious and frustrating, having patience and finding the right property can lead to an excellent purchase below current market value. In many cases, you can even find well-priced properties from motivated sellers that do not even involve banks or lenders because sellers are realizing that they must compete with these distressed properties to sell their homes.

Simple supply & demand economics, take advantage now while there is an oversupply of properties and a weak demand.

Reason #3

US economy is in a recession. I don’t care what anyone says. Unemployment and inflation are up, consumer confidence, housing, the US$ and the investment markets are down. All this spells out one word – RECESSION.

How long will it last? No-one knows for sure, but given that there is a national election being held later this year, the government normally makes an exceptional effort to turn consumer confidence around prior to election time to garner more votes. While this market downturn likely is too severe to see a complete reversal this year, it is certain that the federal government will do everything in its power to soften the landing and turn things around as much as they possibly can.

Do you remember the old adage, “Buy Low – Sell High?” The best time to invest in the market cycle is when prices are low. Now is the time!

Reason #4

Canadian Economy is healthy – for now. For as long as anyone can remember, the Canadian economy has always lagged the US economy by 1-2 years. Why? Because Canada’s economy is attached by the hip to the US economy. The US is Canada’s largest importer of goods and services. When the US economy slows down, Canada’s economy is never far behind. Add to this the weakening US$ which makes Canadian goods more expensive in the US and this further complicates the problem. Take advantage of the inverse market cycle NOW, BEFORE IT’S TOO LATE!!!

MARKET UPDATE DEC 2008 – Well….this is not so much the case anymore, is it? The Canadian economy is slowly following the US economy and other global markets into recession. Now is a great time to liquidate assets near the top in Canadian markets and use them to acquire US assets in strong growth markets near the bottom - LIKE PHOENIX!

HOW to Take Advantage Of This Opportunity

Search Area Real Estate

Do extensive research of all active MLS listings in the Greater Phoenix metropolitan area.

By spending some time searching through local real estate, you will become knowledgeable with pricing in various areas and will be able to focus in on the areas and property types that most interest you.

Get Pre-Qualified

There are 2 ways we recommend that you look at obtaining financing to purchase Property in the US.

1. Get pre-qualified with a local-area lender. Please be aware that Canadian buyers will be required to come up with approximately 20-30% down and pay higher than market interest rates – in the range of 7.00 – 8.00%. Just because you’re Canadian!

2. This method makes much more sense for many Canadians. Take out a home equity line of credit or mortgage on Canadian property you own and use the cash to purchase property in the US with no mortgage. The added advantage: ALL-CASH BUYERS GARNER MORE SERIOUS ATTENTION FROM SELLERS, ESPECIALLY IN A BUYER’S MARKET.

Frequently Asked Questions

Are there any restrictions on Canadians owning US real estate?

No. Anyone from Canada can purchase and hold US real estate. Canadians must abide by US tax and immigration laws, however. There are special visas that allow Canadians to visit/vacation in Arizona for a certain amount of time per year with little hassle, and it is best to speak with an immigration attorney for further clarification. As for taxes, you will be required to pay normal US taxes on all US-based income and capital gains. These taxes may be deductible from Canadian taxes owing, however due to tax treaties between Canada and the US that were created to avoid double-taxation. We suggest you speak with a tax specialist in this regard.

Are there properties 50% below current market value for sale?

Even though we are in a ‘distressed’ real estate market, there are no individual deals that are discounted that steeply. Some banks and investors package foreclosures IN BULK for massive discounts to wholesales that in turn mark the properties up to individual investors and buyers. Keep in mind that property prices have already fallen 10-40% from the highs in 2005 depending on the area. In some cases, you may be able to purchase a bank foreclosure or short sale for a discount to current market value, but it won’t be 50% off CURRENT market value.

Also, keep in mind that many of these ‘distressed’ properties need major renovation or repair due to vandalism or misuse. The cost of these repairs must be factored into the total cost to purchase the home so a great bargain might not be such a bargain after all.

Your Realtor will be able to evaluate current market values for any property you are interested in to determine how good of a value it is relative to other properties.

Why should I use a Buyer Broker?

A Buyer Broker works exclusively on YOUR behalf in the transaction, representing and protecting your interests only – not the Sellers. This assures you have someone looking out for you to make sure you find the best property for you, negotiate the best price and ensure there are no hidden surprises once you close escrow.

Who pays my agent’s commission?

In Arizona, in most cases, the Buyer Agent’s commission is paid by the Seller. There is no additional cost to the Buyer over and above the purchase price for the commission due their agent. How is this possible? There is a disclosure made for all parties defining which agent represent which clients and the Seller’s agent usually makes an agreement to pay a portion of the total commission to the Buyer’s Agent.

How is real estate transferred in Arizona?

Real estate is transferred through a neutral third party called an ESCROW COMPANY that handles the title insurance and deed transfer on behalf of both Buyer and Seller. There is no system of using separate attorneys unless involved in a very complex real estate transaction. The use of the escrow company cuts down the total cost of the transaction for both parties.

Are real estate taxes high in Arizona?

Relatively speaking, real estate taxes are very affordable in Arizona and average around 1% of the total property value per annum.

What kind of closing costs can I expect when purchasing property in Arizona?

We strongly suggest that you perform a quality home inspection when purchasing property to ensure there are no surprises later. Title insurance is normally paid by the Seller, but if you obtain a mortgage to fund a portion of the purchase price, your lender will require you to provide a lender’s policy of title insurance to protect their interest in the property. All in all, expect closing costs to run around 1-1.5% of the total purchase price.