3 Tips for Snowbirds to Manage the Rising Canadian Dollar Pain in 2015
The free fall in the Canadian dollar has snowbirds in shock and awe. It was only a few years ago that the Canadian dollar was at par with the US dollar. During the parity heydays, “This time it’s different” and expectations that the rising Canadian dollar could rise to as much as 1.10 CAD/USD was forecasted by some of the Canadian banks. Now, the tale is much different. Some banks are forecasting a 0.70 CAD/USD with most indicating it’s going to get worse before it gets better.
During the parity run, in 2008 and 2011, the Canadian economy was doing well, oil and commodity prices were strong, and Canada was benefiting from a fast growing Chinese economy. What’s most apparent in the recent fall in the Canadian dollar is the leverage that the Canadian dollar has to oil prices – it is in fact quite shocking. The recent fall in the Canadian dollar has correlated well with the fall in oil prices.
Snowbirds had a once in a lifetime opportunity to purchase US real estate. That opportunity is gone. The US financial crisis had US home prices tumbling, while Canada’s home prices weathered the storm nicely. In fact, stable home prices in Canada allowed Canadians to borrow from their home equity line of credit and purchase US real estate. Since US mortgages are typically difficult to obtain for Canadians, most Canadians buying US real estate were cash buyers using existing home equity. US home prices had fallen 40-60% from their peak and couple that with the rising Canadian dollar to parity, create a once in a lifetime opportunity for Canadians to purchase US real estate.
During this time, seminars by realtors selling Florida real estate to Canadians were propping up all over the place. Newspapers and radio advertising were filled with US homes targeting Canadians. Those that took advantage of depressed US real estate prices and a strong loonie are probably quite happy right now, despite the recent fall in the Canadian dollar. Excluding US home prices gains, which there has been over the last few years, the 20% plus rise in the value of the US dollar relative to the Canadian dollar has effectively increased the net value of their real estate purchase in Canadian dollars by 20%. This means, if US home prices were flat, buying at par and selling today would result in a 20% plus gain. Not bad considering it’s only been a few years. Moreover, US home prices have rebounded and have actually risen for a few years now. That’s a nice bonus. While maintenance costs in US dollars are effectively 20% more expensive today than a few years ago, many Canadians are willing to absorb this increased cost due to the value of their home having appreciated.
For many Canadians that simply visit Florida and didn’t have the courage to buy in a depressed US market, are truly the ones that have lost out. Not only are US home prices higher over the last few years, but the value of the US dollar is also 20% higher creating a double whammy. These Canadians have surely missed the boat. Snowbirds that travel and don’t own real estate can do a few things to better manage the rising Canadian dollar
- Think local. Snowbirds may have to think twice about travelling to the US and may want to consider Canadian alternatives. It’s not that Canadian vacations are any cheaper, it’s just that US vacations are 20% more expensive than they were a few years ago. Reducing frequency in visits to the US and the duration of stay will probably cut costs down.
- Ask for a deal or to pay in Canadian dollars. If you’re a snowbird that is renting in the US, you could ask the homeowner if they would accept Canadian dollars. With the rise in the US dollar, demand may be down from Canadians flocking to the US and you may be able to cut a deal or pay in Canadian dollars. With you paying in Canadian dollars, you are effectively getting a 20% deal. Basically, you’re asking for a discount due to the Canadian dollar. Ask and you may get it. Make sure you do a comparison between the US and Canadian price factoring in the exchange rate to ensure you are getting a real deal.
- Bulk buy your currency. Snowbirds typically buy currency on an as needed basis. Not only are they exposed to the market volatility over time but buying in small amounts of US dollars ensures you pay a hefty exchange rate premium. Generally, when you bulk buy, you can get a better deal. For example, buying US$10,000 once a year compared to buying US$1,000 ten times a year, can likely result in a better deal by paying a lesser exchange rate premium and by getting a volume discount. Moreover, if you are worried about the rising US dollar, you might even want to pre-buy your currency for the next two years. Not only do you benefit from bulk buying your currency, but you also get to lock-in your exchange rate and no longer have to stress about watching the volatile Canadian dollar.
- Use a currency exchange company. While most banks will gladly help you exchange Canadian dollars to US dollars, they often charge steep exchange rate fees, sometimes as high as 2.5% to simply exchange funds. A currency exchange company, our snowbird currency exchange service can cut those costs down by 50% to 75%. On exchanging US$10,000, Canadians can save up to $200 using a currency exchange company compared to the banks. The falling Canadian dollar will have Canadian snowbirds exchanging currency more frugally.
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By Admin | August 13, 2015 | Editorials | 1 comments