Family Formation & Housing

For young couples starting families, buying their first home and/or other real estate. Covers mortgages, credit cards, interest rates, children’s education savings plans, joint accounts for couples and the like.

9 Housing Market Predictions for the next 5 Years

Posted By Financial Independence Hub | September 16, 2022

What is one prediction you have for the housing market in the next five years?

To help you stay abreast of developments in the housing market, we asked real estate professionals and business leaders this question for their best predictions. From more people heading south to buyers shifting toward simple and functional homes, there are several insightful predictions that may help inform your decisions as a buyer, homeowner, developer or other stakeholder in the housing market within the next 5 years.

Here are nine housing market predictions for the next 5 years:

People Will Be Heading South

Expect a Good Degree of Stabilization

Lending Requirements Will Get Tighter

Home Values are Steadily Rising and Stabilizing

Look for Sell-Off by Big Owners

More Smaller and Affordable Houses

Expect More Use of Digital Tools to Promote Sales

Home Prices Will Continue Upward but Much More Gradually

Tastes Will Shift Toward Simple and Functional Homes

People will be Heading South

With remote work becoming the norm, we’ll continue to see people fleeing big cities for more land, warmer weather, and better amenities. Southern states such as Florida, South Carolina, Alabama, and Tennessee will see an increase in home buyers. Fewer people will be moving to the Northeast in favor of a lower cost of living, mild winters, and the ability to be outside 365 days of the year. — Isaiah Henry, Seabreeze Management

Expect a good degree of Stabilization

I think the market will stabilize somewhat, short of any significant downturn. Prices have shot up dramatically in recent years, so if they come down a bit now, that’s not a crash, it’s just a return to Earth. Anyone fearing something like the crash of 2008 should rest easy, as the same conditions are simply not there in terms of inventory, unemployment, and subprime lending. Expect prices in the near future to be somewhat closer to normal, but not dramatically so. — Marcus Hutsen, Patriot Coolers

Lending Requirements will get Tighter

One prediction I have for the housing market is that lending requirements will become tighter. This is because, after a period of loose lending standards, there has been an increase in the number of people defaulting on their mortgages. Lenders are becoming more cautious, and as a result, it will become harder for people to get mortgages. This could lead to a slowdown in the housing market, as fewer people will be able to buy homes. However, it could also create opportunities for investors who are willing to buy properties and rent them out. In any case, the housing market activity is likely to slow down in the next few years. — Lorien Strydom, Financer.com

Home Values are steadily rising and stabilizing

While we can’t magically forecast the future of real estate, it’s pretty safe to assume that home values are going up steadily just as they historically have. That doesn’t mean we won’t see the typical peaks and valleys that result from economic and other variable factors, rather confirm that the housing market fluctuates slightly over time which is normal. Those concerned the 2008 crisis could repeat can be at ease when considering the regulatory measures taken since to avoid straining our economy. It seems unlikely we would see such an event in the US again, and though buyer trends have been irregular in recent years, the data would support steady home values for the foreseeable future. — Tommy Chang, Homelister

Look for Sell-Off by Big Owners

One prediction I have is that the big companies that have been paying outrageous amounts for homes will suffer financially and need to sell them off. The idea behind these conglomerates, which some are foreign-owned, is to buy up private properties and either rent them or flip them for a profit. That is what has caused rents to soar and has pushed many would-be homeowners or independent house flippers out of the market because they can’t compete with the bid price. Continue Reading…

Your home and your retirement plan

Posted By Financial Independence Hub | September 6, 2022

By Anita Bruinsma, CFA, Clarity Personal Finance

Special to the Financial Independence Hub

“Your home should not be your retirement.”

This is a common headline in personal finance and although the details are nuanced, the headline can give the wrong impression: that you shouldn’t rely on the equity in your home to fund your retirement.

Certainly, it shouldn’t be the only source of retirement income: homeowners also have to save using RRSPs and TFSAs. However, homeowners in high-priced housing markets will likely have excess equity in their homes that should be considered when building a retirement plan and determining how much they need to save.

The rationale for the “don’t rely on your home for retirement” advice is twofold: first, that you will always need a place to live and the value of your home will be needed to buy or rent another residence; and second, that you need money to buy food and other things, which you can’t do if all your wealth is tied up in your home.

Both these points are valid, but they don’t apply to everyone. Like all aspects of financial planning, each individual’s personal circumstances need to be considered and in fact, many people should count on their home to help fund their retirement.

You’ll always need a place to live

To address the first point — that your current home will fund your next home — consider doing an analysis that looks at the cost of renting for the years after you sell your home. For those in high-priced housing markets like Toronto, the proceeds from selling a mortgage-free home will likely more than offset the cost of renting for 30 years in retirement, including paying for long-term care. The same analysis applies to downsizing by buying a smaller place in a less-expensive market. This means there could very well be excess funds that can be used later in life and this should be accounted for when determining how much retirement savings you need. Continue Reading…

What Higher Rates mean for the Mortgage Stress Test

Posted By Financial Independence Hub | August 18, 2022

By Sean Cooper, for Loans Canada

Special to the Financial Independence Hub

With higher rates arriving sooner than expected, Canadian’s finances are certainly being stress tested. In this article we’ll look at the history of the mortgage stress test and how higher rates are impacted it.

History of the Mortgage Stress Test

The mortgage stress test was introduced by the federal government several years back to stop homebuyers from overextending themselves. Previously, Canadians homebuyers only had to qualify based on the mortgage rate at the time of application. This was problematic for a couple of reasons.

First of all, mortgage rates could be higher when your mortgage came up for renewal. This could mean that you could face a much higher payment at renewal if mortgage rates were a lot higher then.

Most Canadians choose a five-year mortgage term. However, for those who chose a shorter mortgage term, that means the payment shock can be that much more if your mortgage comes up for renewal sooner.

The second reason it was a problem is that if someone chooses a variable rate mortgage, there’s really no limit to how high mortgage rates can go. You’re only asked to prove that you can qualify at the date that you applied. You’re not being asked to qualify again later on if and when rates rise.

What is the Mortgage Stress Test?

To avoid a similar meltdown as Americans experienced in the real estate market, the mortgage stress test came to be.

With the mortgage stress test, the borrower must prove that they can qualify at the greater of the stress test rate or your mortgage rate at application time plus 2%. The idea was to better protect homebuyers, but this came at a cost. Homebuyers saw their home purchasing power drop by 15% to 20% overnight. This is a direct result of having to qualify at a much higher rate.

Where we are Today

We’re in an interesting situation today. The mortgage stress test is still here. We’re seeing it put to good use, as interest rates are increasing faster than expected. Continue Reading…

How to take advantage of rising interest rates

Posted By Financial Independence Hub | August 4, 2022

By Bob Lai, Tawcan

Special to the Findependence Hub

Lately, the talk of the town seems to be rising interest rates. In April, the Bank of Canada raised the benchmark interest rate by a whopping 0.5% to 1%, making it the biggest rate hike since 2000. Given the high inflation rate, it is almost a given that these rate hikes will continue throughout 2022 and beyond. [On July 13, 2022, the BOC hiked a further 1%: editor.]

But before you freak out, let’s step back and look at the big picture. At 1%, the benchmark interest rate is still relatively low compared to the past interest rates.

I still remember years ago before the financial crisis, being able to get GIC rates at around 5%. And some people may remember +10% interest rates in the 80s or early 90s. Back then, interest rates were much much higher than measly below 1% rates we’ve been seeing the last decade.

A Comprehensive Guide to Buying your First Home

Posted By Financial Independence Hub | August 1, 2022

By Mario Pineda

Special to the Findependence Hub

Thinking about buying a home? As of late 2021, there were 646,053 active home listings, according to Rocket Mortgage. More homes are likely to come on the market in spring and summer, which are hot selling seasons. Investing in a home purchase can afford buyers an asset that, ideally, should maintain or, hopefully, increase in value. Some buyers simply want a place to hang their hat and call their own. Whether you’re raising a family, need space for your dogs, or are ready to tackle the responsibilities of maintaining a house, you can rely on this guide to provide you with the essential information you need to know before you buy one.

Are you ready to buy a House?

Buying a house is a big commitment — living in a specific location, paying a mortgage for decades, and maintaining a property (in order to preserve its value). Many people either aren’t ready to settle down into a home of their own or simply prefer to rent, leaving property maintenance to property owners. You’re likely ready to buy if you:

Are annoyed or tired of renting: typically, renting involves loads of rules stipulated by landlords, annual rent increases, and a lack of privacy (mainly if you live in an apartment complex).
Want to invest in real estate: investing in real estate is a common reason why people buy houses. Unlike rent, which is gone once you pay it, your mortgage payments are applied to the home’s purchase. In typical cases, you’ll retain that money in the form of your asset or recoup it when you sell the house.
Have a family and want more room: if you have a family, you may wish to purchase a home that offers space for each member of your household as well as a backyard that provides outdoor living space.

Pre-purchase Considerations

Before buying a house, there are various factors to consider before you sign on the dotted line of a purchase contract. A home tends to be a long-term investment. To make the most of it, it’s essential to understand the challenges associated with the buying process and the obligations related to property ownership. By exploring the personal and financial areas of your life, you can arrive at the right decision for you.

Personal Considerations

Ask yourself if you are ready to commit to living in a specific area. A mortgage is generally a 30-year commitment (unless you choose to sell the property). What are your plans for the future? Do you expect to relocate soon for your job? Do you wish to have children or to expand your family? These considerations may impact your decision to buy as well as the type of home to buy.

Remember, everything regarding the care of the home will rest on you: and your partner if you are purchasing together. Not only is there the monthly mortgage to cover, but there are also the inevitable home maintenance and repair costs that come into the bargain. In short, understand the financial obligation before you as you contemplate your decision.

Financial Considerations

There are other financial factors to reflect upon too. To qualify for a mortgage, you will need a good credit score as well as a down payment. As banks consider your loan request, they will examine your debt. Do you have existing debt, and is it enough to impede your home buying plan? Also, banks will evaluate whether your income is enough to pay the monthly mortgage payment. Look closely at your financial picture because, rest assured, any lender you choose will definitely examine your finances closely.

The Psychology of Buying a Home

You might not realize it, but engaging in the home buying process can be an emotional roller coaster. It’s easy to get your hopes up that a seller will accept your bid. You might fall in love with the perfect house only to realize that the seller accepted another buyer’s bid. You might also find a home with great potential only to find that it has severe flaws like a cracked foundation. It’s important to keep your emotions in check to make a sound investment decision.

There are other psychological aspects of buying a house that you might not have thought about before. For instance, some people bring cultural superstitions to the process and don’t want to live in a house with specific numbers in the address or are opposed to a particular street name.

Other people might struggle with the perceived value of a home, believing that interior wall colors will substantially affect its worth. The reality is that cosmetic changes are easy and often inexpensive to fix in cases like this.

If you find yourself contending with psychological factors like these, take a step back and think them through. If they’re going to impede your long-time enjoyment of the home, you may want to keep house hunting. If, however, you think you can spend a decade of your life on “Elm Street,” you may be glad that you didn’t allow a horror movie from the 1980s to sabotage the purchase of your dream home.

Searching for a Home

Speaking of needs, you’ll need to consider them closely so that you can confine your search to homes that satisfy them. Before you begin your house hunting adventure, you should consider:

House size: how much square footage will suit you/your household?
House exterior: what architectural styles appeal to you? Bungalow, cape cod, modern?
Bedrooms: what’s the minimum number of bedrooms you need?
Bathrooms: how many bathrooms do you prefer your home to have?
Heating and cooling systems: how efficient are these systems? Will they need to be replaced soon after you buy the house?
Basement: do you want a home with a basement or cellar?
Attic: do you want to purchase a home with a finished attic that offers usable living space?
Garage: how much space do you want your garage to have?

How to Choose the Right Neighborhood

The neighborhood of your home is also an important consideration. A great home in a community that you don’t find agreeable can make for an unhappy situation. When you choose a neighborhood to shop for a home, you should consider:

Safety: investigate the area’s crime rates, affecting property values.
Community services: do you require public transportation? Do you want to live near shopping centers, medical facilities, or parks?
Public schools: be sure to assess the quality of area schools if you have school-age children.
Amenities: what are some local amenities in the area? Is there a local swimming pool, forest preserves, entertainment venues like theaters? What about restaurants?

Top Home Buying mistakes

Many buyers have stumbled into pitfalls when shopping for and buying a house. Try to learn from their mistakes. Here are some of the most common home-buying mistakes to watch out for:

Partnering with a real estate agent who doesn’t “get” your needs and preferences.
Failing to get pre-approved for a mortgage.
Making an offer on the first house you visit.
Getting only one rate quote from one lender instead of shopping for a more competitive lender.
Buying a house that is more than you can afford.
Using all of your savings as a down payment.
Not investigating the HOA if the area has one.
Failing to look into first-time homebuyer programs.
Not researching the community extensively.
Waiving a home inspection.

Special terms for New Home buyers

Is this your first time buying a house? In that case, you’ll undoubtedly want to find out about first-time homebuyer programs and special incentives that can alleviate some of the financial stress associated with buying a home. You may also qualify for programs based on your income or veteran status. An experienced real estate agent will be able to inform you about any programs or incentives that you might qualify for. As a first-time homebuyer, some of the special terms you may be eligible for include: Continue Reading…