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Cautious Canadians Tackle Household Debt
The last 10 years have seen a spectacular boost in home equity in Canada. More than half of the increase Canadians’ net worth since 2000 has been from home equity. The wealth of homeowners has been growing in recent years, while that of renter households has declined, according to Canada Mortgage and Housing Corp. (CMHC). But household debt is also rising at a pace faster than disposable incomes, and that is causing some concern. While low interest rates have been great for the housing market, and the government’s stimulus program to encourage renovation had its desired effect and kept contractors very busy, now Canadians have to pay their debts. Recently the Vanier Institute of the Family, an Ottawabased research and educational organization, warned that Canadian’s debt-to-income ratio has been steadily climbing for the last 20 years, and that the number of households that have fallen behind in their mortgage payments by three or more months is up nearly 50 per cent since the beginning of the 2008 recession. The federal government has reacted to rising debt levels by tightening mortgage lending requirements, including the elimination of amortization periods longer than 30 years. The renovation subsidy program has also expired. While critics suggest that Canada’s banks are guilty of promoting over-spending in the first.....(Cont’d Pg, 3)
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Cover Story - Cautious Canadians Tackle Household Debt Featured Story - A Short List for Long-Term Real Estate Decisions Current Mortgage Rates in Halifax Super Dave’s Auto Sales Referral Program!
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A Short List for Long-Term Real Estate Decisions No longer is there an automatic last move for boomers—that is, being moved into a HOME. No longer is there a “last stage” of adult life that dictates an end to independence and to living in a home you love. Aging in place, or staying in your own home as you age, even if you need support to do so, is now a globally-accepted trend. This means that where you chose to live can have a significant impact on how you live and how you enjoy the decades ahead. Each housing choice has the potential to be your last. Not because you cease to exist, but because the search to satisfy needs and lifestyles ends with a home that is difficult for you to top. An individual or couple could choose to move often and frequently, or they might find one dream-satisfying location and adapt it over the years. Your future may lie somewhere in between. The more flexible your housing choice, and the more fulfilling the neighbourhood that surrounds it, the fewer reasons there are to move. However, when the “kids have grown and gone” family headquarters becomes less desirable or less financially practical, townhouses, condominium units, and rental apartments remain popular alternatives. What has changed for 20th Century lifestyles is: the ever-increasing array of condominium choices from bungalows, estate houses, and townhomes to highrise multi-level suites, amenity-rich hotel rooms, and resort suites. Search out the ideal urban or recreational location, here or anywhere that captures your imagination. You could also own one or more units and move between them with the seasons. the expansion into a new spacial alternative instead of downsizing, or moving into a smaller unit. Up-sizing or buying something larger, whether a house or condominium, is a viable choice for many. This may also involve sharing responsibilities and privileges with other family members or extended family or friends.
a growing list of ownership alternatives that include shared ownership variations for unrelated buyers and purchases of fractions of title which equate to weeks or months of ownership per year. More on fractional ownership variations and related lifestyle options in a later column. You will not necessarily know when you’ve found that best-place-to-stay home until you’ve lived in it for at least a few years. View each real estate purchase with a long-term lens. We’ve all met people who still mourn the long-ago sale of a property. Perhaps that happened to you? A Short List of Long-Term Considerations Here are key long-term factors to consider every time you buy and before you sell, just in case this is the one. The list also offers useful discussion points for constructive conversations with parents or children as they contemplate real estate purchases or sales. Mulling these ideas around makes everyone smarter buyers, sellers, and owners: - When you buy as a couple, what would each do if they became the surviving owner? If this is a solo purchase, what would your choices be if you became a couple? Would this work for two, or would the property be ideal as a rental property? - What long-term needs or wants are compromised by the decision to buy or sell? - What might happen to property value between the time you buy and decide to move on? Decades of steadily-escalating real estate values can lull us into believing real estate will always increase in value over time, or, at very worst, hold its value. The investment caution about not keeping all your financial eggs in one basket
applies to real estate, too. - What long-term municipal official plans and development patterns are in play to change and to preserve aspects of the neighbourhood and its environs, including its water shed? Local environmental groups and government agencies are good sources, online and off, for these investigations. - Which institutions and organizations in the area will preserve variety and quality of life over time? Mental stimulation and life-long learning are acknowledged standard requirements, so how will these needs be met? How committed are you to ensuring that technology remains an enabler for your lifestyle, financial needs, and wellness goals? - Which stereotypes about aging and retirement are holding you back from truly embracing the possibilities of extended living in the 21st Century? What will the outcomes be if all goes as well as possible? What could put those outcomes at risk? - How far into the future can you imagine? When you bought or moved into your current home, how far into the future were you looking? Look back one and then two decades to review priorities and choices. Hindsight can reveal your strengths and weaknesses at forward thinking. Housing with a “retirement” label is not your only choice for the future. When it includes stairs and other design barriers it may not be as practical as necessary. Retirement is a concept from previous centuries that was not held in great regard then. In this century, extended living is the new reality. What type of housing do you need to make the most of these new age-free lifestyles, whatever they involve?
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Cautious (continued from Page 1) ...place, a report from TD Economics says that “despite rising indebtedness, the falling cost of borrowing has been pulling down the share of income households have been shelling out to service obligations. Low interest rates have also helped to keep a lid on the share of vulnerable households in recent years.” The TD report says, “We do not believe that there is a household financial crisis in the making in any region. It particular, the stage appears to be set for a moderation in the pace of household debt growth. A combination of higher interest rates and recently announced changes to borrowing rules…should act to keep housing market conditions in check going forward.” The report says interest rate increases are expected to be gradual, “affording households some time to adjust” and that household incomes are expected to grow “at a decent 3.5 to four per cent on average over the next few years.” An earlier report from Scotiabank Group says that the “relative increase in Canada’s debt-to-asset ratio over the last decade has been much more modest than in the U.S., the U.K. and Australia in large part because the increase in debt has been backed by rising assets, including real estate.” CMHC says home equity accounted for 61 per cent of the increase in net worth of Canadians from the first quarter of 2000 through the third quarter of 2009. The federal housing agency says that “even with large numbers of households opting to buy homes in recent years, mortgages
accounted for a smaller share of total household debt in 2009 than though much of the 1990s, and the share rose only modestly in the past decade. The aging of Canada’s population helped curb the rate of increase in mortgage debt. While many households were taking on mortgages in order to buy homes, others were paying down and even discharging their mortgages. In 2001, 71 per cent of baby boomers who owned homes had mortgages, a fraction that had declined to 66 per cent by 2006.” It says that from 1999 to 2005, the median net worth of homeowners rose 27.4 per cent after inflation, “in sharp contrast to the 5.1 per cent drop experienced by the median renter…The gap between the wealth of owners and renters has been widening for at least two decades.” One of the reasons for the large gap has to do with age. Older households have had time to pay down debt and see the value of their homes appreciate, and homeowners on average are older than renters.
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*OAC, rates subject to change without notice.
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Another bank economist, Robert Hogue of RBC, says that housing affordability will erode during 2011 and 2012 as interest rates climb slowly. Like most other economists, he doesn’t expect a crash in house prices. “Overall, the era of rapid home price appreciation of the past 10 years has likely run its course and we believe that Canada has entered a period of very modest increases.” A BMO mortgage survey found that two in three homeowners say they will be able to handle it if interest rates rise, but 18 per cent said they might have trouble. If you are considering buying a house, BMO says total housing expenses should not consume more than one-third of total household income. Anyone thinking of buying a house should “stress-test” the payments they might have to make at a higher interest rate to make sure they can afford it. For those who are having problems with budgeting and just can’t figure out where all the money is going, the Financial Consumer Agency of Canada has a new interactive budget calculator that will help you with the math. The calculator is divided into categories that prompt users to consider every possible source of income, savings and expenses, says the FCAC.
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