Tuesday, January 26, 2016

Growing Trends for 2016 Real Estate - The Low Loonie

In case you haven’t noticed, the Canadian dollar has been spending most the last 2 years dropping like a rock, as oil prices have plunged from over $100/barrel to recently under $30/barrel. The “Loonie” has spent much of the last decade around parity with the US Dollar or a $1.00 exchange rate.

This month the exchange rate has fallen all the way to under $0.70. This has been a painful adjustment for certain participants in the Canadian economy, especially considering the speed of this decline. This currency decline also has ramifications for the Canadian real estate markets, which we expect to see play out in 2016:
  1. Canadian assets are on sale to Americans and other international markets. Although Canadian home prices are at all time highs in many markets, they are suddenly a lot cheaper to buyers in stronger currencies. This would seem to indicate strong interest from international investors this year looking to stretch their investment dollars.
  2. Canadians investing in American investment properties or vacation properties should slow markedly or even grind to a halt. With the ‘Loonie’s” strength over the last decade, we have seen huge investment south of the border, especially during their real estate market correction in 2007-10. These dollars will surely see some repatriation and investment within Canada should look more attractive domestically, further increasing demand.
  3. Material costs for renovations and new home or building construction will increase. Many of the materials used in construction in Canada are imported from the US and these costs will be increasing this year. Expect sticker shock on new construction costs.
  4. The Canadian tourism sector should see a good year. Expect Americans to vacation more north of the border with their increased purchasing power. Also expect less Canadians to vacation south of the border and travel more domestically. This will translate into a good year for hotels, resorts, casinos, etc. This effect could be considerably strong in border towns and could also spill down into retail sales from American shoppers.
  5. Manufacturing will look more efficient in Canada. We expect the Canadian industrial to benefit from the low “loonie” and increase production. Therefore we see increased absorption in the industrial market and as the vacancy rate really tightens, new construction in the industrial market.
These are some of the effects we expect to see from the lower exchange rate in 2016. What are the effects you are seeing?

Russel Lalovich
Office: (519) 966-0444
Cell: (519) 995-5620

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