Good morning everyone;
It seems like fall came early this week. Some trees have already turned colours – Yikes!
The fall is typically the second busiest real estate season of the year. I am currently prepping 2 homes to bring to market in September. In addition buyers are beginning to return from holidays and have expressed interest in beginning their searches for homes.
The Toronto Real Estate Board and CREA (Canadian Real Estate Association) forecast a robust 3rd and 4th quarter in our realty markets.
This week the Canadian government came out with the “correct” job numbers report (after last week’s computer program goof up) and the economy created 42,000 jobs.
Although the loonie traded up on this news it was quickly overshadowed by tensions in the Ukraine. It is these kinds of factors (and many more) that influence the economy positively or negatively and play a role in the economic decisions carried out by our governments.
Prime Rate – 3.00% Next Bank of Canada Announcement: Sept 3, 2014.
Currently analysts do not forecast any interest rate increases till mid or end of next year.
In the Market
Canada’s national housing agency says it expects builders to stop making as many new homes and focus on selling the ones they’ve already built.
The Canada Mortgage and Housing Corporation’s latest quarterly forecast predicts lower sales volumes for 2015, with 163,000 to 203,200 homes expected to be built. The lower end of that forecast is below the 179,600 to 189,900 new homes expected by the end of this year.
The low end of that range is itself a slowdown from 2013, when 187,923 new Canadian homes were built.
Add it all up, and the housing agency calls for a “soft landing” in housing — a term used by economists to describe a housing market that slowly cools down without ever experiencing a jarring, sudden large drop in prices, sales or new builds.
Prices will tick higher
“Recent trends have shown an increase in housing starts, which is broadly supported by demographic fundamentals. However, our latest forecast calls for starts to edge lower as builders are expected to reduce inventories instead of focusing on new construction,” CMHC economist Bob Dugan said.
While construction is expected to slow slightly, prices are expected to rise.
CMHC’s point forecast for homes predicts a 4.5 per cent gain to $399,800 in 2014 and another increase of 1.8 per cent gain to $406,800 next year.
Just as prices are expected to inch higher, so too does the agency expect sales volumes to tick up.
CMHC expects approximately 463,600 Canadian homes to be sold this year, and 474,300 units next year. Both figures are slightly above the 457,338 homes sold last year.
In all regions across Canada, the CMHC does not expect significant new home construction growth next year.
In Ontario, construction will slow to 57,100 new units in 2014 before steadying the following year. Meanwhile, home sales are expected to rise from 197,900 units in 2014 to 202,500 units in 2015.
CMHC’s senior market analyst, Alex Meadow, says an improving Ontario economy means fewer people will leave the province to go west, and instead will stay home and buy houses.
“An improving economy by 2015 and less out-migration to Western Canada will provide support to the broader Ontario housing market,” he said. “As home prices continue to rise, albeit at a more modest pace, demand will shift to less-expensive housing both by type and geography.”
On the flip side, as fewer people head west to the Prairies, that’s going to have an effect on the housing market there. The CMHC expects construction in the region to slow next year to 50,800 after increasing to 52,900 homes this year.
In Quebec, moderate economic and employment growth will limit demand for homes this year and next. The housing agency expects construction to start on 38,400 new homes in 2014 and 38,700 in 2015.
Building in Atlantic Canada paints the bleakest picture. With more migration out of the region, and a slump in economic growth, construction may drop nearly 14 per cent in 2014 and another three per cent in 2015.
Despite fears of a looming real estate crash, Jeff Cheng, a realtor with Tradeworld Realty Inc., says he sees no indication of a market bubble. “Real estate markets are cyclical by nature, but I think for a bubble there has to be an irrational supply. And I don’t think we have reached that point.” He points to employment, immigration and interest rates supporting demand.
“Certainly Toronto and Vancouver have experienced balloons in pricing, but a soft landing makes sense to me,” Cheng said.
7 retirement worries that need your attention by Gordon Powers
Half of Canadians under 50 are worried about their current and future financial state.
While Canadians feel their financial situation has actually improved in the last two years, half of those under the age of 50 are still worried about their current and future financial state, according to a recent Towers Watson survey.
Less than one-third of them, for instance, believe that Old Age Security and the Canada Pension Plans will continue to provide the same level of benefits in the future as they do today. And more than 70 per cent expect major cuts in provincial health care benefits.
Thinking about issues like these makes sense, but worrying about them usually doesn’t. And, given that most of them aren’t really under your control, are you even worrying about the right things in the first place?
Here’s what should be on your mind instead.
What you’re worried about: The Canada Pension Plan is going to go broke.
What should be on your mind: Picking the right age for you and your spouse to begin to draw a CPP pension.
The CPP is as well funded as it’s ever been and is a stand-alone program that has little relationship to the government’s financial fortunes. Instead, you need to think about the best age for you and your spouse to begin collecting your pension.
According to the most recent figures, about 40 per cent of CPP contributors start their pensions at age 60, the earliest age possible, and another 35 per cent or so opt for age 65.
Virtually no one postpones things to age 70, the final deferral year, despite the fact that such a move ultimately means a 36 per cent increase in benefits.
For many people, collecting their government pensions is simply a matter of necessity. They need the money, and they need it right away.
But holding off and using assets from your portfolio to fund living expenses in the early years of retirement can be an effective way to “buy” additional guaranteed and indexed income for those later years.
What you’re worried about: Old Age Security won’t be available to you in retirement.
What should be on your mind: Building up sufficient financial assets on your own.
There’s little question that government benefits will replace a smaller fraction of pre-retirement earnings as the full retirement age rises beyond 65.
The United States, Spain, Australia and Germany have already boosted the full retirement age to 67; in the United Kingdom it’s now 68. Here in Canada – as of 2029, at least – it will be 67. But you’ll still collect your OAS pension from that point on – and it’s really hard to see that changing anytime soon.
All of which means, unless your retirement income is really quite high, you should be ok with regards to OAS. While it is true that some high-income Canadians are required to repay some or even their entire OAS pension, how much of a difference is that going to make to you?
In 2014, retirees can earn up to earn up to $71,592 annually before their OAS payments start getting clawed back. For each $1 of income above this limit, the amount of your OAS pension shrinks by $0.15. The bottom line: You’d have to be making $116,000 or so before completely losing those OAS benefits.
What you’re worried about: You want to help your kids by paying for university or helping them buy a house.
What should be on your mind: Putting enough money aside to fund your retirement.
Too many people put looking after their kids’ education ahead of their own retirement savings, thinking they’ll make up any shortfall later. But that can be a treacherous strategy.
Three-quarters of Canadians are saving below their ideal target and only half of them believe they’ll be able to improve their financial prospects, according to Towers Watson – and they’re probably correct.
The length of retirement is increasing, as the average retirement age hovers at 64 for men and 63 for women, while life expectancy for both continues to rise.
Currently, women enjoy a life expectancy of 85 (it’s 82 for men), a number that most demographers feel can only head higher.
This longer retirement means tomorrow’s retirees will likely need more savings than their parents did and you can’t afford to wait. Remember, you can’t borrow for retirement like you can for university or college and the numbers are much larger.
The longer you wait, the tougher it is to catch up. The truth is, your kids have many more years to work – you likely don’t.
What you’re worried about: You want to leave a significant estate for your kids.
What should be on your mind: Naming the correct beneficiaries on your various accounts.
While leaving a legacy is a worthwhile goal, it’s likely still pretty far off. But you probably do have insurance and retirement assets to think about and it’s easy to lose sight of a critical detail here: designating a beneficiary for your money in case of death.
If you’re married or living in a common-law relationship, you’re probably better off to name your spouse or partner as your beneficiary, allowing retirement assets to be rolled over to them, tax free.
This way, your RRSP assets can be rolled over to his or her plan at your death, allowing you to avoid paying tax until the surviving spouse is faced with his or her own final tax return.
Periodically revisiting such designations is also important, especially given current divorce rates and blended families. Regardless of your current relationship status, your assets will go to the person you named as a beneficiary.
Birth, adoption, divorce, marriage – or just family discord – may mean changing the beneficiaries in your will or the assets you plan to leave them. Review these items regularly.
What you’re worried about: Owning a mortgage free house in retirement.
What should be on your mind: Can you actually afford to live there for the next 25 years?
With housing prices skyrocketing, more and more Canadians will be paying off their home well into retirement. If you’re still making a decent living in your 60s, then that may not be a problem. Otherwise though, trying to pay it off quickly is a no-brainer.
If you expect to sell your home and move within a few years, the mortgage payoff decision matters less. You’ll pay it off anyway when you sell your home, so letting things ride until then could offer you greater flexibility without too much cost.
Longer term though, things could work out differently. While spending drops for most individuals once they’re in retirement, the bulk of expenditures go towards home-related expenses, according to data from the Employee Benefit Research Institute.
That research shows that while consumers progressively spend less money as they age, housing-related costs still consume close to half of their total expenses.
Even if older people eventually pay off their mortgages, they still end up paying out a good deal of cash on maintenance costs, utilities and property taxes — all of which never seem to go away, EBRI notes.
What you’re worried about: The stock market will crater, and you’ll lose most of your savings for the second or third time.
What should be on your mind: Your money could shrink because you’ve invested too conservatively.
As retirement grows nearer, it seems prudent to invest more conservatively. But you could live another 25 to 30 years and it’s going to be tougher to make money in the future.
As well, although inflation hasn’t strayed far from the historical average of about two per cent annually in recent years, there’s no denying its corrosive effect.
Asset returns in general, and bond yields in particular, have declined over the past two decades so a given accumulation of retirement assets will yield less income.
Bill Gross, founder and CEO at Pimco Investments, the world’s largest bond fund manager, sees nothing but modest investment returns in the years ahead, a state of affairs which, for some time, he has been characterising as the “new normal”.
Gross says that many pension funds are still operating on the mistaken assumption that they will see eight per cent annual returns to pay the pensions coming due for new retirees.
But with bonds returning less than half that, he says, stocks would have to return upwards of 12 per cent a year to achieve this goal, and he doesn’t see that happening anytime soon. In other words, unless your nest egg is colossal, you can’t afford to be too conservative.
What you’re worried about: Long-term care insurance is too expensive and you’ll never collect anything anyway.
What you should be on your mind: Budgeting much more than you thought for out-of-pocket health costs.
Despite Medicare and government supported drugs for seniors, out-of-pocket health costs are projected to consume an ever greater proportion of retirement income.
Without the continuing benefits your parents have enjoyed, you’ll soon be facing a long list of items — ambulances, glasses, hearing aids, orthotics, nursing care, as well as routine dental care and repair — that you’ll have to cover on your own.
To close this gap, here’s hoping the federal government decides to mimic the U.S. model which offers specific tax credits for consumers who purchase long-term care insurance and also permits further deductions for those that are self-employed.
Others experts have been calling for the creation of a new long-term care savings vehicle in which would be permitted to contribute a certain amount of money to a tax-sheltered account each year to save towards long-term care costs.
Like an RESP, the government would also top up those contributions. When the money is withdrawn, only the growth on the funds in the account, as well as the government contributions, would be subject to tax. If it happens, sign up as soon as you can.
Have a fantastic weekend and an even better work week, Anthony