Juggling Dynamite

Many people were happy to purchase U$ vacation properties over the past few years while their home currency was strong and U$ realty had plunged from the 2006 bubble peak in America (as well as some Caribbean, South and Central American locales).  Canadians in particular were excited by the value that our strong loonie (at par and above) could pick up on U$ properties between 2007-2013.  Some even [dangerously] went so far as to borrow mortgages on their over-valued Canadian homes in order to purchase U$ properties abroad.

On a capital basis over the past 5 years, many of these U$ properties have appreciated on paper, firstly because they were bought at relatively low valuations following the 2006-08 US real estate bust; secondly because the influx of international buyers drove prices higher; and mostly, because the U$ the properties are priced in soared against most currencies 2011-2016.

But now the plot thickens. As those same buyers have seen their domestic currencies dive more than 30% against the U$ over just the past 18 months, suddenly their U$ maintenance, taxes and utility costs have become abruptly expensive.  At the same time, less international tourists are keen to travel to U$ hot spots now that the dollar is dear.

The big picture effect is that less people are now looking to rent vacation spots just as more owners are looking for more renters to helps offset higher carrying costs.  Increased supply and less demand is likely to put downward pressure on rents and property prices.  Unable or unwilling to absorb negative cash flow for long, more owners will look to cash out.

This is especially true since most owners are baby boomers who are retired or near retirement on fixed incomes, looking to lower expenses.  It will be especially urgent for those who [dangerously] took out mortgages on their homes in places like Canada to purchase properties abroad.

No trends last forever.  But even if the U$ stops appreciating or weakens some from recent highs, without a rapid recovery in other currencies (like the loonie), inflated U$ costs could prove unfavorable for a considerable time to come.  Many may reassess the math of their U$ vacation homes and decide it makes more sense to sell now and rent other people’s properties, where desired, going forward.

Amid all of these trends, current owners are wise to make a sober review of their own numbers, sooner than later.

Danielle was a guest on Money Talks radio with Michael Campbell today at 9 am PT (noon ET).  You can listen to an audio clip of the segment here under January 2 interview of the week.

Stellar astronomer and TED Senior Fellow Lucianne Walkowicz works on NASA’s Kepler mission, searching for places in the universe that could support life. So it’s worth a listen when she asks us to think carefully about Mars. In this short talk, she suggests that we stop dreaming of Mars as a place that we’ll eventually move to when we’ve messed up Earth, and to start thinking of planetary exploration and preservation of the Earth as two sides of the same goal. As she says, “The more you look for planets like Earth, the more you appreciate our own planet.”  Here is a direct video link.