Seniors to downsize, employ home equity for retirement, help kids buy in
Rosemary McCracken
Province
There’s plenty of action in the mortgage industry with boomers purchasing smaller homes as well as investment properties. Photograph by : The Associated Press
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, 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 that they will be looking for smaller homes — 33 per cent compared with 20 per cent in 2006 and 19 per cent 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 per cent between 1999 and 2005. The main contributor, StatsCan says, 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, partly, StatsCan notes, 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 70s or older, “has already done much of its home downsizing,” 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 BMO Financial’s Laura Parsons. The bank’s Calgary-area manager, business development group, 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 their own homes;
– Purchase investment properties, such as downtown condominiums for rentals;
– 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.”
Canada’s mortgage industry is primed to help the country’s aging population with their housing and retirement needs.
Homeownership 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.
RBC’s Adams believes reverse mortgages will grow in popularity.
“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 age 62 or older, reverse mortgages provide holders with lump-sum payments of up to 40 per cent 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.
© The Vancouver Province 2007
