Now may be the time to buy your dream property in the South.  Prices have dropped 30% or more to return to 2006 price levels before the big run up in value – that ended with the 2008 financial crisis.  Sales prices have steadily dropped since then, as buyers disappeared and mortgage money became harder to come by.  In areas of former excessive housing speculation, such as Florida, Arizona, Nevada and California, home prices have fared the worst, dropping to and below the outstanding mortgage values – under water as they say.

Now, there are signs that prices have bottomed out.  And U.S. mortgage interest rates are extremely low, near 5% for as much as a 30 year term.  This is very enticing, given that the U.S. system permits you to repay that mortgage at any time during its term without penalty.  So if rates were to drop further, or if you wanted to sell and repay the loan, you can refinance or pay off the mortgage at any time.

To make things even more attractive for Canadians, the Canadian dollar is above parity with the U.S. currency.  Whereas our looney on an economic basis should be worth U.S. 90¢ or less, we can, for a period of time, enjoy additional buying power.  All good signs, right?

But there are reasons to reconsider such an obvious buying decision.  Prices are still dropping and given the ongoing U.S. recession, and lack of business expansion and employment, there remains a lack of confidence that prices have reached their lows or that they may stay low for years to come.  Buyers are worried about taking on additional debt.  Lenders are afraid to take on new, long-term loans.  U.S. consumers are working hard to get out of debt, not add to it.  And Canadians are being warned that their own debt-to-income ratios are exceeding those of our beleaguered U.S. neighbours.

To add to this risk aversion, consider that one of the main factors fueling the house price explosion over the last decade was that buyers retiring from the northeast and central U.S. were selling northern homes at huge prices.  These homes aren’t selling anymore, or not at the prices the vendors want.  For Canadians who might want to borrow to buy the U.S. home, consider that mortgage interest is not income tax deductible like it is in the U.S.   So a careful Canadian should look to repay debt quickly rather than keep it outstanding to shelter taxable income.  And the Canadian lenders won’t provide long-term financing on a U.S. property, even from their U.S. branches.

So as usual, Canadian home buyers face the risk of interest rates rising before full repayment, and buying a long-term asset with short-term debt.  They may even have to pay back rising U.S. dollar debt with Canadian dollars declining in value.

Houses are not like stocks that you can dispose of on short notice on a liquid market.  Real estate speculation can be hugely profitable or dangerously expensive.  If you are buying to live in the retirement home, then you are not speculating.  But for many Canadians, they buy 5 to 10 years before they will be able to get much use from their Southern homestead.  They plan to visit extensively, but find they are not able to enjoy the property for more than one month a year.  Or they believe they will rent it out for most of the winter, but are surprised about how many rentals are available.  In fact, if you are planning to use the property less than four months a year, it would probably be better to rent for yourself, not buy.

A final worry should be about U.S. estate taxes.  These rules have been fluctuating with political bickering, but if you have worldwide assets – property, stocks and bonds, golf membership and yachts – valued at more then U.S. $5 million, you will be wise to consider strategies to avoid or minimize U.S. federal estate taxes.

So there are many considerations when you are planning to buy a U.S. winter home.  It can be a very rewarding investment, as many of our parents found.  But the costs of property taxes, insurance, maintenance, reports, security and access to a golf club can add up to $40,000 or more per annum.  Don’t let the annual costs of a property sitting idle cause your profits to evaporate.

Let me know of your experiences, or whether you agree with my concerns.  And remember that money should be carefully handled, but in the end is only useful when it provides necessities and enjoyment for you and your family.