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How Millennials have shifted Homeownership Trends

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By Beau Peters

Special to the Financial Independence Hub

Many millennials prioritize homeownership. And today’s real estate market presents myriad opportunities for millennials to make their homeownership dream come true.

Research indicates U.S. home sales rose 7% month over month in September 2021. Meanwhile, the total housing inventory fell 0.8% month over month. In addition, the median existing price for homes totalled US$352,800, which represented a 13.3% year-over-year increase.

The aforementioned data highlight the rising demand for U.S. homes in 2021. They also illustrate home prices are increasing, which is making it difficult for millennials to pursue their homeownership dream.

At least one study shows some North Americans under the age of 40 have given up on their dream of homeownership. However, it is not too late for millennials to update their homeownership goals. With a clear understanding of home buying trends, millennials can fine-tune their approach to the real estate market. From here, millennials can work diligently to make their homeownership dream a reality.

Now, let’s look at four notable home buying trends and what they mean for millennials.

1.) Most Millennials are pursuing a Home for the first time

Most millennial homebuyers are entering the real estate market for the first time. As such, they may rely heavily on a real estate agent who can help them find a residence that matches their expectations.

When it comes to partnering with a real estate agent, millennials should choose carefully. It helps to select an agent who has extensive real estate industry experience and expertise and knows the ins and outs of the local housing sector. Plus, this agent should have no trouble negotiating on behalf of a millennial homebuyer.

Of course, it pays to work with a real estate agent who values communication. This agent can respond to a millennial homebuyer’s concerns and questions at any point during their quest to acquire their dream home. That way, the agent can help a buyer make an informed home purchase.

2.) Millennials are open to buying “Fixer-Upper” homes

“Fixer-upper” homes tend to be more affordable than other properties. Thus, they frequently generate significant interest among millennial homebuyers.

For millennials who pursue fixer-uppers, buyers beware. There are many reasons why fixer-upper homes are available, so it pays to conduct comprehensive research before purchasing one of these houses. This ensures a millennial home buyer can weigh the pros and cons of a fixer-upper and decide if it is worth investing their time, energy, and resources to upgrade the home.

If a millennial home buyer moves forward with buying a fixer-upper home, purchase the right tools for house improvements. For instance, waterproof wood glue, wall spackle, and other home improvement tools make it simple for a buyer to upgrade a residence without breaking their budget. These tools are generally easy to use and won’t require a buyer to hire a home improvement professional to upgrade their house, either.

3.) Millennials want to limit their Carbon Footprint

Research shows most millennials feel personally responsible for having a positive impact on the environment. As part of this responsibility, many millennials are committed to owning and maintaining sustainable houses.

There is no shortage of opportunities available to millennials who want to buy a house and minimize their carbon footprint. For instance, millennials can compost at home. They can set up home compost piles where fruits, vegetables, and other food products can decompose. Continue Reading…

TFSA contribution limit and overview

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The federal government kept the annual TFSA contribution limit at $6,000 for 2022: the same annual TFSA limit that we had since 2019. It’s still good news for Canadian savers and investors, who as of January 1, 2022, have a cumulative lifetime TFSA contribution limit of $81,500.

The Tax Free Savings Account (TFSA) was introduced in 2009 by the federal conservative government. The TFSA limit started at $5,000 that year: an amount that “will be indexed to inflation and rounded to the nearest $500.” The TFSA limit is expected to increase to $6,500 in 2023.

TFSA Contribution Limit since 2009

The table below shows the year-by-year historical TFSA contribution limits since 2009.

Year TFSA Contribution Limit
2022 $6,000
2021 $6,000
2020 $6,000
2019 $6,000
2018 $5,500
2017 $5,500
2016 $5,500
2015 $10,000
2014 $5,500
2013 $5,500
2012 $5,000
2011 $5,000
2010 $5,000
2009 $5,000
Total $81,500

Note that the maximum lifetime TFSA limit of $81,500 applies only to those who were 18 or older as of December 31, 2009. If you were born after 1991 then your lifetime TFSA contribution limit begins the year you turned 18.

You can find your TFSA contribution room information online at CRA My Account, or by calling Tax Information Phone Service (TIPS) at 1-800-267-6999.

TFSA Overview

The Tax Free Savings Account is a flexible vehicle for Canadians to save for a variety of goals. You can contribute every year as long as you’re 18 or older and have a valid social insurance number.

That means young savers can use their TFSA contribution room to establish an emergency fund or save for a down payment on a home. Long-term investors can use their TFSA to invest in ETFs, stocks, or mutual funds and save for the future. Retirees can continue to save inside their TFSA for future consumption or withdraw from their TFSA tax-free without impacting their Old Age Security or GIS.

Unlike an RRSP, any amount contributed to your TFSA is not tax deductible and so it does not reduce your net income for tax purposes.

  • Your contribution room is capped at your TFSA limit. Excess contributions will be taxed at 1 per cent per month
  • Any withdrawals will be added back to your TFSA contribution room at the start of the next calendar year
  • You can replace the amount of your withdrawal in the same year only if you have available TFSA contribution room
  • Any income earned in the account, such as interest, dividends, or capital gains is tax-free upon withdrawal

How to open a TFSA

Any Canadian 18 or older can open a TFSA. You are allowed to have more than one TFSA account open at any given time, but the total amount you contribute to all of your TFSA accounts cannot exceed your available TFSA contribution room.

To open a TFSA you can contact any bank, credit union, insurance company, trust company or robo-advisor and provide that issuer with your social insurance number and date of birth.

The most common type of TFSA offered is a deposit account such as a high-interest savings account or a GIC.

You can also open a self-directed TFSA account where you can build and manage your own savings and investments.

Qualified TFSA Investments

That’s right: you’re not just limited to savings accounts and GICs. Generally, you can put the same investments in your TFSA as you can inside your RRSP. These types of allowable investments include:

  • Cash
  • GICs
  • Mutual funds
  • Stocks
  • Exchange-Traded Funds (ETFs)
  • Bonds

You can contribute foreign currency such as USD to your TFSA. Note that your issuer will convert the funds to Canadian dollars. The total amount of your contribution, in Canadian dollars, cannot exceed your TFSA contribution room.

If you receive dividend income from a foreign country inside your TFSA, the dividend income could be subject to foreign withholding tax.

Gains inside your TFSA

Some investors may be tempted to put risky assets inside their TFSA account to try and earn tax-free capital gains. There are two advantages to this strategy: Continue Reading…

Affording our Lifestyle, post Financial Independence

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Billy and Akaisha enjoying Chacala Beach, Nayarit, Mexico

By Billy and Akaisha Kaderli, RetireEarlyLifestyle.com

Special to the Financial Independence Hub

It’s no secret that we have been living on around US$30,000 per year.

Now into our 31st year of financial independence we see no need to lower our spending. In fact, we are trying to increase it.

Some people do not believe we can have such a fulfilling lifestyle on this small annual amount, so in this article, we thought to explain how we do it.

Let us break this down

Decades ago we discovered the lower cost of living in Mexico. This is what is referred to as Geographic Arbitrage. You make your money in US Dollars – in our case dividends, capital gains and Social Security – and spend in the local currency. After running around the Caribbean Islands and RVing through the Western US, in 1993 we were invited to visit friends living in Chapala, Mexico. Since we track our spending daily, we saw our expenses in Dollar amounts drop rapidly by being there.

After spending 4 years in Chapala,we started traveling to Asia – another low-cost destination – again utilizing the strength of the US dollar to ease the pressure on our wallets. All the while, our stock market assets continued to increase in value.

For a handful of years again we made Dollars in the market and spent Quetzales in Panajachel, Guatemala. Easy living is what we call it and this is an essential style of our retirement approach.

In between all of these travels we spent time in our Adult Community Resort in Arizona. Surprisingly, our cost of living there was one of the best in all of the locations where we have lived. Yes, we were spending Dollars, but the price of living with value was attractive, and we modified our spending in other ways. Often, we walked or biked to grocery stores and various locations. Rarely using our vehicle at that time, the insurance company gave us a discount for having such low annual mileage. Weather – other than the super-hot summers – was pleasing and since there were tennis courts in the resort and friendly neighbors, we had assorted low-cost entertainment options.

These days we’re settled back in Mexico where the exchange rate is as good as it gets.

Travel

As our readers know, we still travel quite a bit even though Covid has kept us mostly in Mexico.

We have upgraded our lodging and choose more comfortable ways to get from place to place. Intra-country flights are very affordable here in Mexico, with a one-way ticket from Guadalajara to Puerto Vallarta costing less than $50USD per person. One time we flew from Guadalajara across the country to Merida for $38USD each. There is no need to stay at home when a week away is so attractively priced.

Because we have permanent residence status here in Mexico, we are entitled to an INAPAM card offering us 50% discounts on buses. Therefore, our transportation expenses for a bus trip to the beach is 2-for-the-cost-of-one. For example, we go to Chacala Beach, Nayarit, Mexico for 538Pesos for the 2 of us. This is about $13USD each on a luxury, air-conditioned bus.

This INAPAM card also gives us free entry into museums and certain public areas that charge a fee.

Rent

Our apartment, showing the upgrades we just finished

Our rent is $300USD monthly, or the Peso equivalent. This amount allows us to live in a gated garden complex, where we have a roomy one-bedroom apartment centrally located. Shopping, restaurants and doctors are easily within walking distance. There is no pressure to own a car in a foreign country with all the expenses like maintenance, licensing, fuel and insurance that are involved.

Recently we remodeled our kitchen with new counter and backsplash tile plus paint, costing 13,800 Pesos, about $690USD. Continue Reading…

Behavioural Issues with Variable Asset Allocation

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By Michael J. Wiener

Special to the Financial Independence Hub

 

I recently adopted a specific type of dynamic asset allocation for my personal portfolio.  I call it Variable Asset Allocation (VAA).  It only deviates from my original long-term plan when the world’s stocks become pricey, but any time you change your long-term investing plan, there’s the possibility you’re just looking for a smart-sounding justification for giving  in to your emotions.

It’s certainly true that I’ve been concerned for some time that stock prices are high and that the chances of a stock market crash have been rising.  But I know better than to join the chorus of talking heads predicting the imminent implosion of the stock market.  I don’t know what will happen to stock prices in the future.

I’m not tempted to just sell everything and wait for the crash.  It’s possible that stocks will keep rising, and when they finally do decline, it’s possible they’ll remain above today’s prices.  It must be sickening to wait for a crash that doesn’t happen.  This would have been the fate of someone who decided 5 years ago that prices were too high and sold out.

Waiting for a Crash that never comes

Whenever an investor sells completely out of stocks, the problem is when to get back in.  Sometimes, it’s a significant market decline that causes investors to sell all their stocks in fear.  Then they have to decide when it feels safe enough to buy back in.  Too often, they wait until prices are much higher than when they sold.  The same thing can happen to those who sell because they think stock prices are too high.  They can sit in cash waiting for the big crash that never comes.

So, could some form of this happen to me with my VAA?  The answer is no, but only if I follow VAA strictly.  With VAA, if my portfolio’s blended Cyclically-Adjusted Price-Earnings (CAPE) ratio exceeds 25, I add CAPE minus 25 (as a percentage) to my bond allocation.  For example, when the blended CAPE of my portfolio sits at 32, I add 32-25=7 percentage points to the bond allocation I would have had if the CAPE were below 25.

If stock prices rise, the CAPE rises, and if my bond allocation rises enough to trip my rebalancing threshold, I rebalance from stocks to bonds.  However, given that I’ve chosen to adopt VAA, selling stocks is easy because that’s what my emotions are already telling me to do. Continue Reading…

Are Financial Advisors really ready for a serious downturn?

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https://advisor.wellington-altus.ca/standupadvisors

By John De Goey, CIM, CFP

Special to the Financial Independence Hub

Clients facing a big, sustained drop in the markets might not listen to advice that worked last time

I recently listened to an excellent podcast hosted by my friend Preet Banerjee, who had my acquaintance Dan Bortolotti as his guest. Much of the conversation was about Dan’s fantastic new book, Reboot Your Portfolio, but the topics bounced around a bit, and I was left with a sense of dread about the overall mood.

Listeners got a glimpse into what it is like to give advice to retail clients, and some of the anecdotes about the life of an advisor I thought were particularly telling. Discussion around the fear felt by investors and advisors in the five or six weeks when COVID-19 first hit was harrowing, but I couldn’t help but think that advisors listening in might be misled.

In the past decade or so, a narrative about the role and value of professional advice has included behavioural coaching. The term can include such value-added activities as topping up RRSPs, getting wills written, naming proper beneficiaries, integrating taxes and other valuable things. But the one thing that always seems to top the list is the notion that advisors add value by encouraging clients to remove the emotion from decision-making. This helps clients take a long-term view focused on personal life goals.

While I agreed with almost everything said in the podcast, I was concerned by what wasn’t said. There was a lot of self-congratulation about advisors navigating their clients through the major market drawdown in early 2020, as if it were a given that this would always be the case.

In truth, that drawdown was the shortest bear market in history. As bear markets go, a walk in the park. Mr. Bean could have provided enough comfort and counsel to keep clients invested in that market. While there is nothing wrong with giving credit where credit is due, I think the podcasters were too congratulatory to mainstream advisors. There was also a reference to the global financial crisis of 2007-2009, and both podcasters agreed that it was far harsher than the 2020 experience. Again, the story was that good advisors can help emotionally driven clients stay on course when things get choppy. They can – but that’s not necessarily the same as they will.

Comparing downturns

That attitude I heard is likely based on what they’ve seen and done in their careers – and those careers embody a time of relative stability. Few advisors today were working in finance during the bear market of 1974 when the OPEC oil embargo crashed markets. In addition, the one-day drop of more than 20 per cent in 1987 was a blip of sorts, but markets were still up that calendar year.

So, the only significant bear markets most people reading this have lived through were: 1) at the turn of the millennium (aka the dot.com bubble), and 2) the global financial crisis. Both were medium-sized drawdowns. But what if we experience something earth-shattering? How will we react? Nobody knows.

If you claim to play a role in modifying behaviour constructively, you will also be prepared to stand up and take your lumps should that behaviour not be what you wanted nor expected.

Here is what I mean by “medium sized.” In the first one, it took about seven years for the S&P 500 to return to its previous level; the index stood at around 1,500 in April 2000 and didn’t return to that level until October 2007. While the previous high was technically reached, it was only a few weeks before the trend reversed and markets began to fall back again. The S&P 500 didn’t get back to the 1,500 range again until February 2013. There was a dip and return, closely followed by a second dip and return, and the net effect was the entire market went sideways for more than 13 years.

Most people refer to the early 2000s as two distinct drawdowns experienced back-to-back, but I would describe both as medium-sized drops. Either way, the net effect, excluding dividends, was no market growth for more than 13 years. Continue Reading…