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There is Sun City—the world’s first dedicated retirement community is, in fact, located in Maricopa County—and then there is Sin City. In many ways, Phoenix was the poster child for the U.S. housing crash, with a peak-to-valley price drop of 56% that by mid-2011 had returned values to 1999 levels, according to the Case-Shiller Index, which measures same-property resales. But there were even bigger eyes and even sadder faces in Las Vegas, where a plunge exceeding 60% transported prices all the way back to 1997.
Through his Canada Real Estate Investors Club, Calgary-based broker and consultant Mike Wolf buys and sells distressed homes in several states but concentrates most of his activity in Las Vegas, believing that such Sunbelt spots stand to bounce back both sooner and higher than their Rustbelt counterparts, where prices are even cheaper. “It wasn’t an accident that Phoenix and Las Vegas had a bubble,” he says. “People want to live there.” After all, he points out, the weather is good and the cost of living is low. Nevada has a business-friendly climate, with no state income tax. “You can buy a house here and have a good life just working at McDonald’s,” he says.
The purchase price and rental-income numbers that Wolf cites for Las Vegas are similar to Fedoruk’s for Phoenix, but in some ways Las Vegas requires a more careful eye. He divides the city into A, B, C and D areas. Snowbirds should concentrate on only “A” and “B” areas, he says, while investors can go for “B” and “C,” which run from tidy middle-class neighbourhoods to gnarlier areas where most homes are rentals but safety isn’t a significant issue. He thinks that no one should consider buying in the “D” areas, which are a lot riskier than otherwise comparable Canadian neighbourhoods.
Wolf also picks up properties in Texas from time to time, even though most of the state avoided the extremes of both bubble and bust. He likes the potential returns in Houston and Dallas, particularly for apartment buildings, as well as Austin, San Antonio and the coastal areas. But prices in Texas are higher than in places like Phoenix and Las Vegas, and steep property taxes steer many potential buyers away from the Lone Star state altogether.
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California, too, remains a mecca for Canadian snowbirds, although with caveats. In the resort town of Palm Springs, for example, the local real estate board does not track international purchasers, but realtor Claudine Messika believes her experience is not atypical: Of 26 sales in 2011, 13 were to Canadians. Vancouverites remain the most enthusiastic acquirers in their traditional wintering grounds, she says, but their numbers are being augmented by growing numbers of Calgarians and even Torontonians. As of December, Messika had more than 100 potential Canadian buyers lined up for wintertime home viewings in a market that seems to have turned the corner.
Yet much of the rest of California remains in a real estate funk. Just west of Palm Springs is the still-benighted Inland Empire, where orange groves long ago gave way to the never-ending sprawl of Los Angeles; there, in the golf course-rich town of Beaumont (which developers at one time imagined as a snowbird alternative), the mean selling price sat at $177,000 in late 2011, compared to $190,000 a year earlier and $405,000 in 2006. In San Diego, December’s median price of $301,000 was 7% below year-ago levels. Proportionate to population, stateside sales to international buyers are only one-third the level of Arizona and Nevada.
For many investors, California prices are still too high, according to Mike Wolf. Plus there’s the uncertain political and economic climate of a state on the verge of bankruptcy—further complicated by California’s state withholding tax of 3 1/ 2% on sales to foreign nationals on top of the federal withholding tax present in other states.
Still, Canadian buyers are there, as they are across the Sunbelt, kicking the real estate tires. Even among her mostly snowbird shoppers, Claudine Messika says that “100%” are looking for a sound investment. So, is their timing right, or could prices go even lower? Most experts predict several more years of fits and starts before the U.S. real estate situation sorts itself out. But as places like Phoenix and Palm Springs appear to illustrate, in at least some markets the bottom has probably been reached. And more and more Canadians—notoriously stuck in that “continuous race for power and money”—are banking on it.
