Shodan
Apr 8, 2007, 8:58 PM
Boomers ready to downsize
Home sales trends; Ageing population tapping into home equity
Rosemary Mccracken
CanWest News Service
Tuesday, April 03, 2007
Canada's Baby Boomers are planning to downsize their homes -- a trend that could have a huge impact on the housing market and home financing if even part of the nine-million-strong cohort move to smaller accommodations.
Signs of the Boomers' downsizing are evident in Royal Bank of Canada's 14th Annual Homeownership Survey, says Catherine Adams, RBC's vice-president of home equity financing in Toronto.
The 2007 survey shows that of Canadian homeowners who are planning to purchase a home in the next two years, a dramatically increased number said this year they will be looking for smaller homes -- 33%, compared with 20% in 2006 and 19% in 2002.
"The Baby Boomers have built up a lot of equity in their homes," notes Keith Tongue, senior director, broker and mobile sales at Vancity Savings and Credit Union/Citizens Bank of Canada in Vancouver. "Many of them got into the housing market years ago and their homes, especially here on the West Coast, have gone up dramatically in value. Many will want to tap that equity in one way or another."
In its latest survey of financial security, released in December, Statistics Canada found the total value of Canadians' assets rose 42.4% between 1999 and 2005.
According to StatsCan, the main contributor was the increase in the market value of real estate, largely the result of price increases.
"The single most important asset for Canadians is their principal residence," the report adds.
Net worth generally increases with age, StatsCan notes, partly because many older people live in mortgage-free homes. The survey shows the median net worth of "elderly families" (age 65 and over) was $443,600 in 2005 (up from $343,000 in 1999), while the median net worth of "non-elderly families" was $204,000 (up from $155,000).
But the generation ahead of the Boomers, people now in their seventies or older, "has already done much of its home downsizing," Mr. Tongue says. "They've moved into condos or smaller bungalows. And the generation following the Boomers bought when prices were much higher."
The Boomers may be planning to tap their equity, perhaps moving to smaller homes, but the home financing industry is confident they will remain in the housing market and many will require home financing for years to come.
"I'm seeing a lot of Baby Boomer clients capitalizing on the equity they've built up in their homes," says Laura Parsons, BMO Financial's Calgary-area manager, business development group.
Ms. Parsons says the Boomers are using homeowner lines of credit and other means of financing to renovate their homes, purchase vacation homes, help their children to buy homes, purchase investment properties such as downtown condominiums for rentals or invest in the stock market.
"There has recently been some dampening of housing demand, which could have an impact on construction and house prices," says Paul Ferley, assistant chief economist at BMO Financial in Toronto.
"But the housing market is not just dependent on demographics. Income generates strong economic growth. We see increased demand in coming years for vacation properties, adult-lifestyle communities and high-end condominiums as the Boomers move into the downtown areas from the suburbs."
"A lot of vacation property is now being built, especially in British Columbia, for people who are planning to retire and perhaps spend winters out of the country," Ms. Adams adds.
Interest rates are expected to drift moderately higher this year and next, Mr. Ferley says. "Beyond that, interest rates are expected to remain relatively steady, although this is contingent on inflation remaining close to the Bank of Canada's midpoint target of 2%."
Ms. Adams notes the RBC study shows that an overwhelming majority of Canadians believe purchasing a home is a good investment. "And the buy-now message is coming through loud and clear across all age groups --from 25 through 55-plus."
Of Canadians planning to buy a house within two years, an increasing number are looking at a shorter purchasing window.
"More than half, 58%, of them are saying, 'buy now, don't wait for next year,'" Ms. Adams notes.
Recent changes in the mortgage market have made mortgage accessibility better than ever. Amortization of up to 40 years, instead of 25 years, has become available.
"The good thing is this allows people to get into the housing market because monthly payments are lower over the longer amortization period," Ms. Adams says. "But the total interest costs are higher over the longer term. Total interest costs over the life of a 35-year mortgage are 50% more expensive than over a 25- year period. It's a good temporary strategy, but I worry that some people are only thinking about the lower payment and not seeing the entire picture."
Mr. Tongue says homeowners in older demographic groups are opting to extend their mortgages over longer periods.
"We're seeing some younger Boomers, say, in their late forties while their cash flow is still strong, moving into bigger houses and taking out equity to upgrade the property. The Boomers have always enjoyed displays of status and a home is most people's biggest status symbol."
And 100% financing has been around for a few years. "The fit is for young, professional couples just out of university who have income to support a mortgage but no money for a down payment," Ms. Parsons says.
"Although they would only qualify for 25- to 35-year amortization, we would help them understand how they can combat interest costs of a longer amortization by increasing payments and making lump-sum payments."
Canada's mortgage industry is primed to help the country's ageing population with its housing and retirement needs. Home ownership and home equity lines of credit allow them to finance travel, family needs and retirement living expenses by using the equity in their real estate to secure a higher credit limit at interest rates as low as prime.
"Why run up expensive credit card debt when you can have debt at prime?" Ms. Adams asks.
A wealth of products are available to encourage first-time homebuyers. Vancity's mixer mortgage, for instance, allows family members or friends to share the cost of buying a home.
"All parties go on title, so you'll see parents going on title with their adult children and helping them with their mortgage payments," Mr. Tongue says.
Combinations of mortgages and operating lines of credit are also available.
"As homeowners pay down the mortgage, they have more money available to them in the operating line," Ms. Parsons notes. "We're also helping clients customize their new and existing homes to accommodate them as they age, with features such as framing for future elevator shafts and more accessible bathrooms and kitchens," she adds.
Ms. Adams predicts reverse mortgages will grow in popularity in coming years.
"For many Canadians, their homes are their largest investment and they'll need them to finance their retirement," she says. "They can do this by downsizing to a less expensive home, or by remaining in the home and taking out reverse mortgages."
Available in Canada to those aged 62 or older, reverse mortgages provide holders with lump sum payments of up to 40% of the appraised value of the home up to a maximum of $500,000, based on age and life expectancy. For those who use them for living expenses, the payouts are tax-free.
© National Post 2007
Copyright © 2007 CanWest Interactive, a division of CanWest MediaWorks Publications, Inc.. All rights reserved.
Home sales trends; Ageing population tapping into home equity
Rosemary Mccracken
CanWest News Service
Tuesday, April 03, 2007
Canada's Baby Boomers are planning to downsize their homes -- a trend that could have a huge impact on the housing market and home financing if even part of the nine-million-strong cohort move to smaller accommodations.
Signs of the Boomers' downsizing are evident in Royal Bank of Canada's 14th Annual Homeownership Survey, says Catherine Adams, RBC's vice-president of home equity financing in Toronto.
The 2007 survey shows that of Canadian homeowners who are planning to purchase a home in the next two years, a dramatically increased number said this year they will be looking for smaller homes -- 33%, compared with 20% in 2006 and 19% in 2002.
"The Baby Boomers have built up a lot of equity in their homes," notes Keith Tongue, senior director, broker and mobile sales at Vancity Savings and Credit Union/Citizens Bank of Canada in Vancouver. "Many of them got into the housing market years ago and their homes, especially here on the West Coast, have gone up dramatically in value. Many will want to tap that equity in one way or another."
In its latest survey of financial security, released in December, Statistics Canada found the total value of Canadians' assets rose 42.4% between 1999 and 2005.
According to StatsCan, the main contributor was the increase in the market value of real estate, largely the result of price increases.
"The single most important asset for Canadians is their principal residence," the report adds.
Net worth generally increases with age, StatsCan notes, partly because many older people live in mortgage-free homes. The survey shows the median net worth of "elderly families" (age 65 and over) was $443,600 in 2005 (up from $343,000 in 1999), while the median net worth of "non-elderly families" was $204,000 (up from $155,000).
But the generation ahead of the Boomers, people now in their seventies or older, "has already done much of its home downsizing," Mr. Tongue says. "They've moved into condos or smaller bungalows. And the generation following the Boomers bought when prices were much higher."
The Boomers may be planning to tap their equity, perhaps moving to smaller homes, but the home financing industry is confident they will remain in the housing market and many will require home financing for years to come.
"I'm seeing a lot of Baby Boomer clients capitalizing on the equity they've built up in their homes," says Laura Parsons, BMO Financial's Calgary-area manager, business development group.
Ms. Parsons says the Boomers are using homeowner lines of credit and other means of financing to renovate their homes, purchase vacation homes, help their children to buy homes, purchase investment properties such as downtown condominiums for rentals or invest in the stock market.
"There has recently been some dampening of housing demand, which could have an impact on construction and house prices," says Paul Ferley, assistant chief economist at BMO Financial in Toronto.
"But the housing market is not just dependent on demographics. Income generates strong economic growth. We see increased demand in coming years for vacation properties, adult-lifestyle communities and high-end condominiums as the Boomers move into the downtown areas from the suburbs."
"A lot of vacation property is now being built, especially in British Columbia, for people who are planning to retire and perhaps spend winters out of the country," Ms. Adams adds.
Interest rates are expected to drift moderately higher this year and next, Mr. Ferley says. "Beyond that, interest rates are expected to remain relatively steady, although this is contingent on inflation remaining close to the Bank of Canada's midpoint target of 2%."
Ms. Adams notes the RBC study shows that an overwhelming majority of Canadians believe purchasing a home is a good investment. "And the buy-now message is coming through loud and clear across all age groups --from 25 through 55-plus."
Of Canadians planning to buy a house within two years, an increasing number are looking at a shorter purchasing window.
"More than half, 58%, of them are saying, 'buy now, don't wait for next year,'" Ms. Adams notes.
Recent changes in the mortgage market have made mortgage accessibility better than ever. Amortization of up to 40 years, instead of 25 years, has become available.
"The good thing is this allows people to get into the housing market because monthly payments are lower over the longer amortization period," Ms. Adams says. "But the total interest costs are higher over the longer term. Total interest costs over the life of a 35-year mortgage are 50% more expensive than over a 25- year period. It's a good temporary strategy, but I worry that some people are only thinking about the lower payment and not seeing the entire picture."
Mr. Tongue says homeowners in older demographic groups are opting to extend their mortgages over longer periods.
"We're seeing some younger Boomers, say, in their late forties while their cash flow is still strong, moving into bigger houses and taking out equity to upgrade the property. The Boomers have always enjoyed displays of status and a home is most people's biggest status symbol."
And 100% financing has been around for a few years. "The fit is for young, professional couples just out of university who have income to support a mortgage but no money for a down payment," Ms. Parsons says.
"Although they would only qualify for 25- to 35-year amortization, we would help them understand how they can combat interest costs of a longer amortization by increasing payments and making lump-sum payments."
Canada's mortgage industry is primed to help the country's ageing population with its housing and retirement needs. Home ownership and home equity lines of credit allow them to finance travel, family needs and retirement living expenses by using the equity in their real estate to secure a higher credit limit at interest rates as low as prime.
"Why run up expensive credit card debt when you can have debt at prime?" Ms. Adams asks.
A wealth of products are available to encourage first-time homebuyers. Vancity's mixer mortgage, for instance, allows family members or friends to share the cost of buying a home.
"All parties go on title, so you'll see parents going on title with their adult children and helping them with their mortgage payments," Mr. Tongue says.
Combinations of mortgages and operating lines of credit are also available.
"As homeowners pay down the mortgage, they have more money available to them in the operating line," Ms. Parsons notes. "We're also helping clients customize their new and existing homes to accommodate them as they age, with features such as framing for future elevator shafts and more accessible bathrooms and kitchens," she adds.
Ms. Adams predicts reverse mortgages will grow in popularity in coming years.
"For many Canadians, their homes are their largest investment and they'll need them to finance their retirement," she says. "They can do this by downsizing to a less expensive home, or by remaining in the home and taking out reverse mortgages."
Available in Canada to those aged 62 or older, reverse mortgages provide holders with lump sum payments of up to 40% of the appraised value of the home up to a maximum of $500,000, based on age and life expectancy. For those who use them for living expenses, the payouts are tax-free.
© National Post 2007
Copyright © 2007 CanWest Interactive, a division of CanWest MediaWorks Publications, Inc.. All rights reserved.
