By: Jim Scherrer
The loonie, nickname for the Canadian dollar coin that replaced the former Canadian paper dollar bill, is a hendecagonal (how’s that for a nice new word meaning eleven sided?) bronze plated nickel coin that has been minted in Canada since 1987. It displays Queen Elizabeth II on one side and a common loon, a well known Canadian bird, on the reverse side.
For about five years prior to 2008, the Canadian dollar rose steadily from less than $0.70 US to more than $1.00 US; however in 2008 it plummeted from par with the US dollar back down to around $0.80 US. Since its rapid fall in 2008 it has slowly crept back up to $0.85 US. This rapid devaluation in the Canadian dollar caused concern for all Canadians because their purchasing power seemed to have been reduced by approximately 25%.
We say “seemed” to be reduced because all too often foreign currencies are only compared to the US dollar. This comparison might not always be pertinent because in the case of Canadians, there is always the possibility of travel to or retirement in countries other than the United States, thus their spending power might not always be based solely on the strength of the US dollar. As an example, Mexico is a frequently selected vacation destination for Canadians due to its warm winters, beautiful beaches, and close proximity. In fact, Mexico is so much enjoyed by Canadians that it has become a premiere retirement haven for them.
When Canadians consider visiting or retiring in Mexico, it’s only logical that they compare the Canadian dollar or loonie to the Mexican peso; this is where it gets very interesting! Viewing the graph, you’ll clearly see where the loonie has steadily increased in strength versus the peso every year for seven consecutive years as it has risen from 5.8 pesos/loonie in early 2002 to 11.8 pesos/loonie in early 2009.
This more than doubling in the value of the loonie translates into a much stronger Canadian purchasing power in Mexico today than seven years ago. Resort real estate prices have historically been closely tied to the US dollar, however the costs of most other commodities in Mexico will seem to be a bargain to Canadians when comparing to those of seven years ago.
For the sake of comparison, the US dollar versus the Mexican peso held firm at around 10.5 pesos/US dollar for many years until the past year when the peso slipped to 13 pesos/US dollar, thus resulting in a 25-30% devaluation of the peso relative to the US dollar. So, what we find during the past seven years is a 25-30% strengthening of the US dollar during the same time period that we find a 100% strengthening of the Canadian dollar relative to the Mexican peso.
Armed with this little known or commonly overlooked currency conversion data, Canadians should feel wealthier than ever when considering a visit to Mexico!
For those Canadian baby boomers thinking about retirement destinations, Mexico has never offered more attractive opportunities for investing than it currently offers. During the past decade of explosive growth, there have been tens of thousands of new condos built. In fact, in Puerto Vallarta alone, there are currently approximately 7,000 new units available. Due to the recent mortgage crisis and the stock market related recession in the United States, Americans have severely cut back on all investments including foreign real estate purchases. To compound the situation, the Mexican economy has suffered unfairly from negative press releases concerning drug related violence on the US border and the swine flu epidemic. Consequently, there is currently a serious glut of new real estate properties in Mexico and it has therefore become a genuine buyer’s market in resort destinations such as Puerto Vallarta.
Another item of interest to Canadians is that of real estate mortgages in Mexico. Until recently, such mortgages were virtually nonexistent; however, today 20-30 year real estate mortgages are readily available to Canadians. The mortgage companies normally charge about 2 points above the going rate in the US and require at least 20% down payment.
Due to the reasons addressed above, there may never be a better time for Canadians to explore the opportunities in Mexico. The loonie, even though on the surface may seem weak compared to the US dollar, is at its strongest point ever when it comes to shopping in Mexico. This fact combined with the fact that many developers have overbuilt in all of the Mexican resort cities presents a virtual shoppers Paradise for all Canadians still holding loonies!
Hopefully, all of you fortunate Canadians holding your strong loonies will now have a better appreciation for the unique position that you’re in and will be more inclined to take advantage of it. Not only is the loonie, compared to the peso, at its strongest in seven years but it’ll probably strengthen even more relative to the US dollar as inflation will surely creep into the US economy over the next few years. Holding a Mexican mortgage with a fixed interest rate of about 7% on a bargain basement priced new condo in Paradise could prove to be the investment of a lifetime for you. So, why hesitate? Pack up your bags, head south of a couple borders, and you’ll witness firsthand how the loonie has strengthened for seven consecutive years in Mexico.
Jim Scherrer has owned property in Puerto Vallarta, Mexico for 26 years and resided there for the past eleven years. The mission of his series of 55 articles pertaining to retirement in Puerto Vallarta is to reveal the recent changes that have occurred in Vallarta while dispelling the misconceptions about living conditions in Mexico. For the full series of articles regarding travel to and retirement in Vallarta as well as pertinent Puerto Vallarta links, please visit us at PVREBA.