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.

How does Real Estate ROI compare to other investments?

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By Penelope Graham, Zoocasa

Special to the Financial Independence Hub

If you ask a long-term homeowner whether they feel their home purchase has turned out to be a worthy investment, chances are they’ll say it was; real estate continues to be considered a safe and effective way to grow your money, according to 68% of homeowners who’ve owned a home for 10 years or longer, according to data collected by Zoocasa.

However, the Canadian housing market is coming off of an admittedly quieter year, with steep declines in sales activity recorded in some of the nation’s largest markets: The Greater Toronto Area, Greater Vancouver, and Calgary have all seen the number of homes changing hands plunge by double digit percentages, mainly due to the impact of tougher federal mortgage rules.

That has subsequently trickled down into home values, with the west coast markets posting year-over-year price declines, while the GTA experienced only moderate, single-digit growth.

So, does the old adage of real estate being among the wisest of investments still hold true? To find out, Zoocasa.com compared average year-over-year price performance to that of three popular investments:

  • The S&P / TSX Composite Index (-11.6%)
  • The S&P Canada Aggregate Bond Index (+1.5% y-o-y)
  • And a high-interest savings account (+1.1%)

Let’s take a look at how real estate price gains (or lack thereof) compared to the returns on these investments in the adjacent infographic.

GTA only market to outpace investment comparison

The GTA (Toronto) housing market ended the year on a positive note, posting an increase of 2.1% for the average home price of $750,180, and the only market to outpace all three investment types.

However, the market lost a considerable bit of steam over the course of the year, unable to hold onto the 9.9% gains achieved at the market peak in June, when prices hit an average of $807,871. Year-over-year December sales clocked in 16% lower than in 2017, which the Toronto Real Estate Board attributes to the federal mortgage stress test. This hurdle, introduced last January, requires borrowers to qualify at a higher rate than their actual contract rate, resulting in a smaller mortgage amount and squeezing affordability in an already expensive market.

“Higher borrowing costs coupled with the new mortgage stress test certainly prompted some households to temporarily move to the sidelines to reassess their housing options,” said TREB President Garry Bhaura, in the board’s December report.

Vancouver values fall from last year

It has been an especially painful year for the Greater Vancouver MLS, as sales have dipped a whopping 31.6% from December 2017: the lowest level of activity since the year 2000. That’s translated into an average price decline of 1.7% to $1,032,400. Continue Reading…

5 tips for new parents wanting to own their own home

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By Ernesto Mar Domingo

(Sponsored Content)

Owning a house may sound daunting. It can be an instant switch that can make you feel excited, nervous and really conflicted.

Although home ownership is a trial and error thing, it is a possible goal if you aim for it. One thing that can help you with this journey is a solid house-buying battle plan.

Like any other major purchases, you need help, research, and a strong resolve, but as a parent, you may be more motivated on this goal. After all, there is nothing greater than getting your own roof for your family.

Ready to embark on this ride to successful homeownership? Here are five tips to get you on your way.

1.) Know what you and your family need

We all have a certain dream house. While we may rather live in a castle or a glass house, we have our family to account for.

It is crucial that you choose with your brain and not your heart. To do this, you need to acknowledge what your family needs. You need to think of your lifestyle and look for a home that perfectly fits this kind of living.

Knowing what you need in a home is the first step in owning one. There are many kinds of houses: apartment, single-family home, condominium space or even a cottage in the countryside.

Aside from this, you also need to write down how many rooms, bathrooms, kitchens, and other utilities you need. Do you need a garden? A large garage? Balconies facing the sunsets? You should take all of this into consideration.

However, be realistic. You can’t exactly buy the best and grandest home you can imagine. Unfortunately, we have what we call a budget. In the end, choosing a house will still go down on how much you can afford.

2.) Save. Save. Save.

The biggest question in owning a home is glaringly challenging: how much can you afford?

But do not let this keep you down. With a grueling but fruitful savings regime and iron-clad perseverance, you can save up enough money for your dream home.

How?

You can:

  1. Create a budget plan.
  2. Give your savings a time frame to move things up.
  3. Cut down any unnecessary bills and payment.
  4. Earn larger amount money.

3.) Stick to your budget

The idea of maximizing all your income and savings sounds reasonable enough, right? Unfortunately,  it is not practical. Continue Reading…

Is your neighbourhood in a Sellers’ Market for homes?

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By Penelope Graham, Zoocasa

Special to the Financial Independence Hub

Deciding whether or not to get into the real estate market? While budget, location, and home type will be among your top considerations, there’s another metric that can help inform your move: the buyers’ conditions in your desired neighbourhood.

Understanding whether you’ll be dealing with a sellers’, buyers’, or balanced market is key to crafting your offer or listing strategy. Those trying to buy a home amid tight sellers’ conditions will need to be ready to participate in bidding wars, for example, make aggressive bids, and be prepared to drop offer conditions to be competitive. Entering a buyers’ market indicates more real estate inventory and choice for buyers, and often the room to negotiate.

Sellers are also wise to take these conditions into account as listing during a relaxed market may mean adjusting pricing expectations; it could be a better idea to wait for the market to firm up before trying to sell your home.

What is a Sellers’ Market?

But what actually classifies a market as buyers’, sellers’, or balanced? A common misconception is price. However, while prolonged conditions will eventually influence home values, a buyers’ market doesn’t also indicate better affordability, and vice versa. Rather, these conditions are determined by a metric called the sales-to-new-listings ratio (SNLR).

The SNLR is calculated by dividing the number of sales by the number of new listings within a specific housing market over a period of time. It reveals how many of the homes listed for sale are selling within that time frame, and sheds insight into how competitive the market is for buyers and sellers. According to the Canadian Real Estate Association (CREA), an SNLR between 40  to 60% is considered a balanced market, with below and above that threshold indicating buyers’ and sellers’ conditions, respectively.

Getting the Bigger Picture

A great thing about looking at SNLR is you can get as local as you need to with your market assessment; a buyer or seller can understand what’s happening at the neighbourhood level, whether they’re looking for condos for sale in downtown Toronto, or Etobicoke homes for sale.

The SNLR can also be used to measure activity over larger geographic areas. At a provincial level, Ontario’s housing market remains in balanced territory, with an SNLR of 56%. However, this ranges quite widely throughout the province with some surprising results, according to recent data compiled by Zoocasa; a look at October sales and new listings numbers reveals Ontario’s most affordable markets are actually among the tightest in terms of sellers’ conditions.

Sellers’ conditions in Ontario’s most affordable markets

In markets where homes sell for less than $500,000, 10 of 12 municipalities could be considered sellers’ markets. Continue Reading…

How can you create a supplementary source of income?

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By Beth Morris

(Sponsored Content) 

Is your job failing to provide you with money to spend on the things that you always wanted to have for yourself? Since you most likely have free time other than the typical eight hours of sleep per day, you should use it to earn additional income.

If you need further convincing as to why you should seek to build a source of income aside from the one that your current job provides, you should consider talking to a financial advisor or planner like those from Capstone who can walk you through the nitty-gritty of how to plan out your finances going forward. But if you already want to get straight to it, here’s how you can create a supplementary source of income:

Build an online store

Shopping online has become a common activity for some, especially those with tons of money to spend but don’t want the inconvenience of driving into town. However, instead of settling at becoming an online shopper yourself, why not try selling products via the Internet?

You might want to consider registering a seller account first at an e-commerce platform such as Amazon or eBay. You can set up shop in your chosen e-commerce platform in only a matter of minutes, thus allowing you to focus more on spreading the word about your online store and targeting potential buyers.

Once you’ve established yourself as an online seller, you can then consider creating a dedicated website for your onlinestore where you can have fuller control of all the profit generated by your side business. Just remember to retain your day job for the time being until you can already live comfortably using the earnings that your online store receives.

Work as a Freelance Writer

You may have a knack for writing about anything under the sun, but your current job might find you doing anything but that. However, since you don’t spend your entire day working at your job, you can use your free time in an income-generating way by rekindling your passion for writing and finding work as a freelance writer.

Website owners and bloggers who find very little time to write content – especially if they have a hectic schedule – often hire freelance writers and pay them to create articles and posts. Once you become a freelance writer for a website owner or blogger, your research skills will be put to the test, thus making you learn more about specific topics in a more active way compared to when you stumble upon a random article on the Internet and read it in your spare time. Best of all, you can work anytime you want as a freelance writer. Continue Reading…

Is Renting throwing away money?

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Most people tackle the rent vs. buy problem incorrectly by framing it as the cost of monthly rent versus the cost of a monthly mortgage payment. The argument goes something like, “if your monthly rent costs as much as a mortgage payment on the same or similar property, then it’s a no-brainer to buy the home and build equity rather than flushing your rent money down the drain.”

Others argue that a better comparison looks at the true cost of home ownership, which not only includes the mortgage payment but also things like property taxes, insurance, and maintenance.

However, as PWL Capital’s Ben Felix pointed out in the latest Rational Reminder podcast, neither argument paints a truly fair comparison of rent vs. buy. What you need to look at, he explains, is the total unrecoverable costsin each scenario.

For example, a monthly rent payment is a total unrecoverable cost: an expense that does nothing to improve the renter’s net worth. A mortgage payment, on the other hand, only has partial unrecoverable costs: the interest paid on the mortgage. The other portion reduces your mortgage amount and therefore increases your net worth.

A winning point for home ownership, right? Not so fast.

We need to add up all of those additional costs that a home owner bears (property taxes, insurance, maintenance), plus any upfront money spent on a down payment, land transfer tax, title insurance, home inspection, etc. to close on the home.

There’s also an opportunity cost on the down payment and other closing costs. That money could have been invested instead of put towards buying a home.

Rent vs. Buy: Let’s Do The Math

Let’s look at an example of a renter in Toronto who’s paying $2,000 a month to rent a 575-square foot condo. The same condo is listed for $449,000.

To purchase the condo our renter would need to put down 5 per cent, or $23,450, plus add another $17,062 to the mortgage due to CMHC insurance (required on all mortgages with down payments of less than 20 percent), for a total mortgage amount of $443,612.

Our upfront costs are not done, however, as we need to add in land transfer taxes of $10,910, lawyers fees of $1,000, title insurance of $449, plus a home inspection for $500.

Total upfront costs = $36,309. The opportunity cost of this amount in 25 years at 6 per cent a year = $155,834.

Now let’s look at the unrecoverable monthly costs. The mortgage is amortized over 25 years and has an interest rate of 3.50 per cent. The monthly mortgage payment is $2,215. Of that payment, $1,200 goes towards interest and $1,015 goes towards paying down the mortgage principal.

Then we have property taxes coming in at $375 per month, and we’ll also add the difference between home insurance and tenant insurance, which is $40 per month. We also need to add expected maintenance costs, which we’ll estimate at 1 per cent of the property value per year, or $375 per month.

Total unrecoverable monthly costs (interest, plus property tax, plus insurance, plus maintenance) = $1,990

The unrecoverable costs for the renter and homeowner are nearly identical. The total monthly payment for the homeowner, including property taxes, insurance, and maintenance, is $3,005. Just $1,015 of that is building equity in the home. So, back to the rent vs. buy argument.

Rent and Invest the Difference

We have to assume our renter has an extra $1,015 available in their cash flow each month to invest. What are the expected returns for a 60/40 balanced investment portfolio over 25 years: maybe 6 per cent? Continue Reading…