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What’s with the Loonie? How does it affect Niagara’s Real Estate Market?

I read an interesting article in the Globe and Mail this morning which put things into perspective regarding the decline of the Canadian Dollar. The article was written by Christopher Ragan, Jan 12th, 2016. I will paraphrase what I took from the piece.

Here are the facts:

Canadian dollar 1995 was worth 73 cents US. It dropped to 63 cents US in 2002. After 2002, it slowly rose to 93 cents by 2005 and went over par by 2011. Today, we are in the same sort of cycle. This morning, the Dollar was less than 70 cents US. Can we predict where the Loonie will end up in the near future? Possibly...

There are two major reasons for fluctuations in our currency in relation to the US Greenback:

The first is the change in global commodity prices, including oil, potash, wheat, copper, uranium and timber. These commodities make up one third of our global exports. The demand for these exports raises the demand for the Canadian Dollar to buy these commodities. Thus, the Loonie goes up and down with the demand. The Russian, Indian and Chinese economies are in decline over the past few years and thus the decline in demand has hurt our dollar. I believe that the US has an agenda to lower the commodity prices, oil in particular as a part of their foreign policy towards Russia and the OPEC oil producing countries.

The second most important factor is the swing between Canadian and US interest rates, which is affected by monetary policy. The US economy is now recovering faster than the Canadian economy. The US Federal Reserve is now on a rising-rate path. Whereas, the Canadian economy is in a sluggish zero growth mode, and the Bank of Canada is loath to raise rates. As the US rates rise, the smart money goes to the source of the highest returns- the Canadian dollar is negatively affected.

To answer- where is the Loonie going? I think you have to look at commodity prices. How long is the price of oil going to stay down? If commodity prices remain low, so goes the loonie.

How does the low dollar affect the Niagara real estate market? You would think that we would have seen an influx of American money buying up our properties. This hasn’t been the case. I think that our prices are on average still a lot higher than what is seen in the US housing market. Thus, we don’t have a lot of bargains for those flush with Greenbacks. Canada is still a safe haven for the Chinese, Russian and Far Eastern buyers. Our real estate is still a safe investment and there is a good opportunity for speculation on the Canadian Dollar.

I think we may see some more Canadians looking to Niagara on the Lake as a spot to buy their getaway homes as opposed to the States. I think this will affect the lower end of our market. We are seeing the lower end pushing up and the high end pushing down. Soon some of the higher end product that has been sitting on the market for some time will come down in price. It has to as sales above 1 million dollars have been very sluggish over the past year.

Our market will remain stable over the next year, but I don’t foresee a lot of inflation. I think that we will continue to see the Toronto buyers as the Boomers continue to retire. We look forward to another steady year at Niagara on the Lake Realty regardless of where the Loonie takes us.

Chris Bowron – Broker of Record