Introduction Cross Border Tax, Estate Planning & Services. February/March 2015

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1 February/March 2015 Cross Border Tax, Estate Planning & Real Estate Legal Services With over twenty-five years of legal experience, Altro Levy LLP is a boutique law firm providing sophisticated cross border tax, estate planning and real estate legal services. With offices in Montreal, Toronto, Calgary, Vancouver, Florida, California and Arizona, Altro Levy serves all Canadians and Americans who wish to enjoy a cross border lifestyle. The firm regularly represents Canadians who have U.S. assets, Canadians with adult children in the U.S., Canadians moving to the U.S., as well as Americans living in Canada. To learn more about our cross border legal services, please visit our website FLORIDA REAL ESTATE MARKET REPORT Introduction The Florida real estate market was deeply shaken when the U.S. housing bubble burst eight years ago. Today, recovery is evident across the state. This is welcome news for Canadian snowbirds looking to invest in Florida property either for personal use or investment purposes. Below, a historical overview of the Florida real estate market, predictions for the U.S. economy in 2015 and forecasts for five Florida real estate markets popular with snowbirds are presented. First, a look at the report s highlights. Highlights The U.S. economy is predicted to grow by 3% in 2015, only the second time such growth has been forecast in the past decade. 1 U.S. mortgage interest rates have fallen over the past year and are expected to rise slowly while credit conditions loosen. 2 Employment and wage growth are on the rise across the U.S., 3 including Florida. 4 Prices of Florida homes are rising, but Florida properties are still affordable for snowbirds; rising prices may create capital gains down the road. 5 Florida real estate may be a good investment due to the above; the tightening rental market in many cities may also influence snowbirds to purchase Florida real estate. 6 Historical Overview of the Florida Real Estate Market: The U.S. housing bubble began to burst in 2006, causing a credit crisis that led to the start of a recession by the end of 2007; 7 the Case-Shiller price index published on December 30, 2008 reported a record decrease of 18% in home prices from It is widely believed that the housing bubble burst because of the U.S. s loose standards for approving mortgage loans as well as the low interest rates offered on mortgages and short-term loans. 9 Many U.S. states felt the impact of the housing crisis, but Florida was among the hardest hit. Between 2007 and 2013, the price of homes in Florida fell by over 48%, due in part to increased unemployment rates and overbuilding. 10 Foreclosures were commonplace.

2 Generally, compared to the Florida real estate market in 2003, Florida housing prices hit their peak in 2007 across several communities, including those favoured by Canadian snowbirds, such as Naples-Marco Island, Orlando-Kissimmee, and Cape Coral- Fort Myers. 11 Prices bottomed out in 2011 and by the last quarter of 2013, average prices in Florida [were] only 7 percent higher than However, while new home builds in Florida fell well below the 2006 peak in 2009, they increased gradually between 2009 and 2013, 13 and, by 2012, the South Florida housing market, which is particularly popular with Canadian snowbirds, was beginning to show signs of recovery. 14 The real estate market crash in Florida was, in some ways, beneficial to Canadians. The strong Canadian dollar and falling U.S. housing prices encouraged Canadian buyers of Florida real estate. Currently, over 500,000 Canadians own Florida real estate, 15 and Canadians account for 1/3 of all real estate purchased by foreigners, most of which was purchased in the past five years, between 2008 and 2013, inclusive. 16 Historical Overview of the Florida Real Estate Market: In 2014, Canadians continued to play a key role in the recovery of the Florida market. According to the National Association of Realtors s 2014 Survey (the 2014 Survey ), 17 foreign buyers of Florida real estate spent $7.97 billion dollars on Florida property in 2014, an increase from $6.43 billion dollars in The 2014 Survey attributes this increase in sales to the continued recovery of the world economy and the affordability of U.S. properties... approximately 76 percent of all Florida realtors believe that their clients found Florida property less expensive than similar property in their home countries. 19 Housing prices in Florida are particularly affordable, especially when compared to the cost of a Canadian home. According to Jack Ablin, Chief Investment Officer at BMO Harris Private Bank, the median priced home in Florida is nearly half that in Canada - $124,000 USD vs. approximately $255,000 USD in Canada s large urban centres. 20 This is perhaps one reason that the largest number of foreign buyers of Florida property were Canadians, who composed 32% of the foreign buyers of Florida property accounted for in the 2014 Survey. 21 One recent trend is that many Americans are now renting homes while they recover from the U.S. financial crisis and await access to credit for mortgages. As the rental market continues to tighten, purchasing a vacation home may be the most convenient way for snowbirds to consistently enjoy high quality vacation property. Alternatively, investing in Florida property can also be a good source of revenue for Canadians who choose to rent their Florida property to locals or snowbirds in search of a vacation home in a tight market. 22 Investing in Florida rental property has, indeed, become more popular over time: the number of Canadians who purchased Florida real estate for the sole purpose of renting that property out increased from 14% in 2008 to 24% in The 2014 Survey is in line with the Florida Realtors December 2014 Statewide Report for single-family homes, which also reported rising sales in The report shows that closed sales of single-family homes state-wide totalled 22,414 in December 2014, an increase of 15.8 percent from December The median price of both existing single-family homes and townhouse-condos rose in December 2014 as well: the median sales price for single-family homes rose to $185,000, up by 6.9% from December 2013, 26 and the median sales price for townhouses and condominiums rose to $149,000, up by 8.4% from December December was the 37th straight month of year-over-year rising median sale prices for single-family homes, townhomes and condominiums. 28 Sherri Meadows, the 2014 president of the Florida Realtors association, attributes Florida s real estate appreciation in 2014 to three factors: the fact that people are moving to Florida in increasing numbers, the employment market s improvement and the strengthening Florida economy. 29 Short sales of single-family homes and condo-townhouses dropped significantly in 2014 as well: 2014 short sales for single-family homes fell by 50.7% and short sales for condo-townhouses fell by 58.2% compared to Across Florida as a whole, 244,543 existing single-family homes were sold in 2014, an increase of 8.1% from Although condo-townhouse sales dropped by 1.2% from 2013 to 2014, 32 as Florida Realtors Chief Economist, Dr. John Tuccillo states, We close the books on 2014 on a very positive note. The year marks the transition of the Florida real estate market from a rapid recovery to a path of steady growth. Virtually all the metrics for the market are moving in the right direction at levels that can be sustained. 33 Based on the expectations for the U.S. economy, Florida economy and Florida real estate market outlined below, the future of Florida real estate continues to look bright for Expectations for Florida Real Estate Market: 2015 The U.S. Economy & U.S. Real Estate Market The U.S. real estate market will become healthier over the course of According to Freddie Mac s January U.S. Economic & Page: 02/07

3 Housing Market Outlook, the strengthening U.S. economy, with its economic growth... running at about a 3 percent annual rate 34 will play a significant role in the ongoing stabilization of the U.S. real estate market. U.S. government fiscal stimulus and loosening credit conditions may contribute to improving the U.S. economy and real estate market. 35 Below, some of the 2015 U.S. real estate market highlights predicted by Freddie Mac, including commentary on the energy sector s role on market conditions, as well as a review of Canadian interest rates. U.S. mortgage interest rates, which fell below 4% at the end of 2014, will increase to about 5% by the end of The Bank of Canada recently cut its overnight rate by 1/4 of one percentage point to 3/4 per cent. 37 This move may be beneficial for Canadian homeowners with variable-rate mortgages. TD Bank predicts the Bank of Canada will cut this rate by another 1/4 percent in March. 38 The major Canadian banks are dropping interest rates on mortgages in response to the Bank of Canada; rates on five-year fixed-interest mortgages are currently as low as 3.09% (TD Bank) and 2.84% (RBC). 39 One attractive option for Canadians planning to invest in Florida real estate may be to finance at home in Canada, taking advantage of these low Canadian rates while simultaneously avoiding the precarious currency exchange rate game. At the start of 2015, U.S. mortgage rates continue to stay low, making refinancing a viable option for borrowers. Low rates may help the growing purchase market continue to expand and reach the highest levels... seen since Fannie Mae and Freddie Mac have also launched their Home Possible Advantage lending program, which offers a 3% down payment option on home buys and refinances if certain criteria are met, as sanctioned by the Federal Housing Finance Agency. A small cut to premiums for refinancers or borrowers purchasing a home for the first time will also be on the table for 2015, offered by the Federal Housing Administration. These initiatives are expected to contribute to the expansion of the U.S. housing market in Housing appreciation, which was 9.3% in 2013 and 4.5% in 2014, will fall to 3% in Although U.S. real estate will continue to appreciate and mortgage interest rates will rise, housing will remain highly affordable. 42 New home builds will increase by 20% from 2014 to 2015, which may account for the predicted 5% increase in total home sales projected by Freddie Mac. 43 The falling price of crude oil has influenced the price of gas - gas prices at the start of 2015 were just above two dollars per gallon, and it is possible that this figure will fall below the two dollar per gallon mark. The last time gas prices were as low was Falling gas prices puts more money in Americans pockets, which gives them more spending power and sparks economic growth. 44 Whether the above will translate to an increase in housing market stability remains to be seen; the downside to falling energy prices is that housing markets centred around the energy sector, such as various cities in Texas, may recover at a slower rate in A lagging global economy marks the start of 2015, which might weaken the U.S. economy in turn, slowing growth across various industries, including the housing sector. Freddie Mac reports a global forecast of growth, however. 46 Realtor.com, the National Association of Realtors s website, made similarly positive projections in their 2015 Housing Forecast. Realtor.com s chief economist, Jonathan Smoke, cited the improving job market as a key catalyst for increasing the health of the U.S. real estate market in 2015: as young people enjoy greater job prospects (it is predicted that 2.75 million jobs will be created in the U.S. this year), 47 their ability to enter the housing market will increase. 48 As long as access to credit remains available despite the predicted rise in mortgage interest rates, expected in the third quarter of the housing market will enjoy a boost from first-time homebuyers. 50 Currently, low interest rates and gas prices are acting as a boon to the U.S. housing market. 51 New home starts and home sales are expected to increase along with mortgage refinancing, at least in the short term. 52 Going forward, all eyes will be on the global economy and its impact on the U.S. housing market. 53 The Florida Economy & Florida Real Estate Market According to JPMorgan Chase s recent Florida Economic Outlook, 54 Florida s economy will be improving along with the rest of the U.S. this year. 55 Real estate is a key component of Florida s economy; while the state has experienced losses in recent years due to the collapse of Florida s home-building business, 56 Florida s steadily improving employment rates (reflected by the normalizing level of layoffs and decreasing unemployment benefits applications), 57 reflects the positive trends in the larger U.S. economic context outlined above. The information relayed by leaders at the Florida Realtors 2015 Economic Summit, held in Orlando on January 21, 2015, also echoed these positive nationwide trends. Florida Department of Economic Opportunity Executive Director Jesse Panuccio stated Page: 03/07

4 that Florida has the fastest-growing labor force in the country out of the ten largest U.S. states. According to Ted Jones, chief economist and senior vice president of Stewart Title Guaranty Company, Florida can expect 2.2 to 2.4 percent total job growth in the next year. 59 As Florida s population continues to grow, the state s economy and housing market are both set to boom. 60 JPMorgan Chase predicts that housing prices will rise in tandem with income, reflecting the growing Florida economy. 61 In keeping with these trends, the 2015 forecast for new home building is also positive in Florida: recovery, although gradual, is predicted to continue in Indeed, as 2015 began, the Florida housing market showed signs of a balanced inventory, moderate sales growth and rising home values that reflect historical rates. 63 Like the reports proffered by Freddie Mac, Realtors.com and JPMorgan Chase, BMO Bank of Montreal s Annual Snowbird Outlook also predicts that the value of U.S. homes is on the rise. 64 According to BMO, Canadian snowbirds who already own U.S. vacation property can expect their U.S. property to appreciate, creating healthy capital gains. 65 For Canadians looking to purchase a U.S. vacation home in Florida, now is the perfect time as the BMO report predicts that retirement state housing prices [will] outpace the national average, due to increasing numbers of retirees, and abundance of capital from abroad and lower interest rates. 66 This is good news for Canadians who already own or plan to purchase property in Florida. Breakdown by County Below, a brief snapshot of Florida real estate in 2014 with predictions for 2015, broken down by some of the Florida counties most popular with snowbirds. Altro Levy attorneys have represented numerous buyers and sellers in real estate transactions in the below counties and have had the opportunity to analyze the following real estate market trends. 1. Sarasota The Sarasota market remained affordable in 2014, with inventory that slightly increased at the end of the year. 67 Inventory availability and pricing account, in part, for Sarasota s robust number of sales in 2014: the Sarasota real estate market closed last year with a record sales rate of 11,550 transactions, an alltime high for the county that exceeds pre-recession sales records. 68 Industry statistics dictate that the Sarasota real estate market may be a seller s market in This prediction falls in line with both the national and state-wide housing market predictions, which are forecasting property appreciation across the board. The Realtor Association of Sarasota and Manatee expects more robust sales in 2015, with low mortgage rates, unemployment levels and energy costs predicted to offset rising property prices. 70 Sarasota Collier 2. Collier (Naples) Palm Beach Broward Miami-Dade The Naples Area Board of Realtors s Annual 2014 Market Report points to continuous recovery for the Collier County real estate market in 2015, particularly in the luxury real estate market. 71 Sales of single-family homes and condominiums priced between $1 million and $2 million increased by 21% between 2013 and 2014, and sales of single-family homes and condominiums worth $2 million or more rose by 33% in The median closed price of single-family homes and condominiums increased by 13% in the same period, from $240,000 to $270, Closed sales of single-family homes and condominiums across all price categories in the Collier County market only increased by a modest 1% between 2013 and However, broker analysts contend that [2014] was the third best year in sales history within the last 10 years due to the fact that sales of properties priced in brackets over $300,000 increased notably. 75 As high-net worth buyers continue to invest in Naples, Collier County will continue to stabilize and grow in Miami-Dade (Miami) The Miami real estate market is also set to continue recovering in Although the Miami economy dealt with severe blows during the recession, which was marked by decreased property Page: 04/07

5 values, foreclosures and unemployment, the past three years have been record sales years and property has been appreciating for the past two years. 76 In 2014, demand for residential real estate was high, and new condo builds began to increase noticeably. 77 Foreign buyers account for much of the buzz surrounding Miami condos; waterfront property is at a premium, particularly for snowbirds looking for vacation homes. 78 These properties will likely appreciate in 2015, as will developments in Miami s urban centre. 79 As Miami s economy continues to recover and job growth increases, the city will continue to attract real estate buyers, particularly for projects designed by star architects, which may gain in both popularity and value in Broward (Ft. Lauderdale) Like Miami, Ft. Lauderdale should experience more job growth in Florida currently ranks fourth for job creation, and, in 2014, the Miami-Ft. Lauderdale area had the most job growth its seen since If this trend continues for 2015, the Ft. Lauderdale real estate market should reap the benefits. 81 In 2014, home values in Ft. Lauderdale rose by 7.4%. 82 The housing website Zillow predicts only an incremental increase in home values for Ft. Lauderdale: the forecast is a 0.7% increase over the course of In 2015, 83 the themes for Broward County and Ft. Lauderdale will be moderate unemployment and real estate market stabilization in a post-recession climate. 5. Palm Beach At the end of 2014, buyers continued to seek Palm Beach property as the market stabilized and incomes allowed for homebuying. 84 Although home prices in Palm Beach County fell towards the end of 2014 (by November, the median price had dropped by just under 1% when compared with November 2013), home sales went up by 9% between November 2013 and November This 9% increase in sales mirrors the overall 9% increase in the total estimated value of homes for all three major South Florida counties in 2014: $717 billion in Palm Beach, Broward and Miami-Dade, a spike just under 10% from last year. 86 Sales of luxury Palm Beach County properties valued at $1 million or more rose by 16% in 2014, 87 and, overall, in 2014, Palm Beach County home values rose by 13%. 88 According to Zillow, Palm Beach County real estate is expected to appreciate by another 2.1% in The consistently growing rate of luxury home sales reflects the strength of the luxury real estate market in Collier County, and, when coupled with the predicted property appreciation, could mean good things for the future of Palm Beach County real estate in As the nation s economy recovers in 2015, the demand for properties in Palm Beach County will likely remain strong with buyers continuing to seek out homes in this highly valued South Florida area. Conclusion The outlook for Florida real estate is positive for The U.S. economy is stabilizing after a lengthy recession took its toll on the nation, particularly the Florida housing market, previously one of the most robust in the country. Florida real estate markets popular with snowbirds should mimic the strengthening U.S. economy in 2015 thanks to new home starts, job and wage growth, slightly loosening credit standards and low interest rates. It is an exciting time in the history of Florida real estate. For those snowbirds who already own Florida real estate, or those snowbirds who are looking to purchase property for the first time, 2015 is an ideal time to turn your mind to crossborder estate and tax planning in order to ensure that your investment in the U.S. real estate market is both smooth and financially beneficial. Disclaimer This report presents information of a general nature and is not intended to be an opinion on any specific individual situation. The report also contains statistical information that should not be construed as providing legal, tax or investment advice. While the report endeavours to ensure accuracy and timeliness, no one should act upon the information contained herein without appropriate professional advice and after a thorough examination of the facts of a particular situation. Partners David A. Altro, B.A., LL.L., J.D., D.D.N., F. Pl., TEP Florida Attorney, Canadian Legal Advisor & Quebec Notary daltro@altrolevy.com Shlomi Steve Levy, B.A., LL.B., J.D., TEP Quebec Lawyer & Canadian Legal Advisor slevy@altrolevy.com Matt C. Altro, B. Comm., F. Pl., CFP (CAN), CFP (US) Chief Operating Officer maltro@altrolevy.com Bonnie L. Altro, B.A., B.C.L., LL.B. New York & Ontario Attorney baltro@altrolevy.com Jonah Z. Spiegelman, B.Sc., M.A., J.D. British Columbia, Alberta & California Attorney jspiegelman@altrolevy.com Professionals Jason S. Ansel, B. Comm., LL.L., J.D. Ontario & Quebec Lawyer jansel@altrolevy.com Antoine Brosseau Wery, LL.B., J.D. Quebec & New York Attorney awery@altrolevy.com Heela Donsky, B.A., J.D. Ontario Lawyer hdonsky@altrolevy.com Leanne Milech, B.A., LL.B. Ontario Lawyer lmilech@altrolevy.com Samantha Y.F. Wu, B.A., J.D. Ontario & New York Attorney swu@altrolevy.com Page: 05/07

6 Endnotes See Notes 58-60, below Ibid documents/florida-economy.pdf, p Ibid. 13. Ibid, p Ibid p Ibid, p Ibid. The 2014 Survey, entitled Profile of International Home Buyers in Florida, surveyed Florida realtors on their experiences completing real estate transactions for foreign buyers of Florida real estate from the 12-month period beginning July 2013 and ending June Ibid, p Ibid, p Ibid p Reports/Index.cfm, p. 1 (December Single Family Homes) 26. Ibid, p Reports/Index.cfm, p. 4 (December Townhouse Condos) para para para Ibid, para Ibid, para Ibid, para outlook.pdf, para Ibid mortgages/rbc-is-first-to-cut-mortgage-rates-as-bond-yields-plunge/ article / outlook.pdf 41. Ibid Ibid outlook.pdf 45. Ibid. 46. Ibid & Forecast-Stage-Set-for-the-Return-Of-First-Time-Home-Buyers 48. Ibid outlook.pdf 25. Ibid. Page: 06/07

7 Endnotes & Forecast-Stage-Set-for-the-Return-Of-First-Time-Home-Buyers 51. Ibid. 52. Ibid. 53. Ibid documents/florida-economy.pdf 55. Ibid, p Ibid, p Ibid, p Ibid. 60. Ibid documents/florida-economy.pdf, p Ibid, p Ibid. 78. Ibid. 79. Ibid. 80. Ibid [accessed Feb. 9, 2015] 83. Ibid Ibid. 86. Ibid [accessed Feb. 9, 2015] 89. Ibid Ibid. 66. Ibid Dec2014Stats-RASMMagFeb2015.pdf 68. Ibid Nov. 2, Dec2014Stats-RASMMagFeb2015.pdf January_(report_)_Luxury_Market_Gains_Momentum_in_2014.pdf 72. Ibid. 73. Ibid. 74. Ibid. 75. Ibid Page1.html Page: 07/07