Monday, January 30, 2012

HBP vs TFSA to buy your first Home

When it comes to scrounging up a down payment for a first home, many homebuyers take money where they can find it. If they've been socking away money in their RRSP for the last few years - and reaping the rewards of tax savings on the money - chances are there isn't a lot of money saved in other places. It seems logical, then, to take advantage of the government's Home Buyers' Plan and dip into those retirement savings, use them as a down payment, and repay the money over the next 15 years. After all, retirement is still most likely quite a ways away, right?

This article in the Financial Post questions whether it's really wise to sacrifice the growth of your retirement savings in favour of buying a home today.

It gives the example of a 30-year-old individual with RRSPs valued at $30,000, earning 8% per annum on average. If there were no HBP withdrawal, the RRSP would grow to $139,829 by age 50 and $301,880 by age 60. But take $20,000 out and repay it over 15 years and the RRSP would be worth $92,215 at age 50 and $199,805 at 60.
Instead, the article suggests taking advantage of a TFSA and drawing a down payment out of this newer investment vehicle. While there are definite pros to using a TFSA, in most cases the government's Home Buyers Plan is just the more logical option. Here's why:

1) Tax savings when you need them.
Let's face it - most people purchase their first home relatively early in their working life. When you're not earning a lot, you're not saving a lot either. Socking money away in an RRSP is great primarily because of the tax return you receive every spring - money you can either put back into your RRSP, or spend elsewhere. Either way, it's a great incentive - and great motivation to choose the RRSP over the TFSA.

2) You can only save so much.
To go with the above point, early in your career, there's only so much money to go around - and you can only save so much. While the article suggests using $20,000 from a TFSA and combining it with $25,000 in the HBP to put towards a new home, realistically most people just don't have this type of cash.

3) Retirement is still a ways off.
While you will lose some of the advantages of compound interest by dipping into your retirement savings, there is nothing stopping you from increasing your RRSP contributions down the road to make up for the loss. You also aren't obligated to take the full 15 years to pay back the funds you borrowed under the HBP. The quicker you pay it back, the quicker you can start saving again.

4) A home is an investment, too.
Yes, dipping into your RRSP to purchase a home will cost you in accumulated growth. But by using that money to purchase a home, you're essentially diversifying your retirement nest egg. If your home is a good investment - that will either increase in value or, at the very least, keep its value over time - you're in a good place. Come retirement, you'll likely be mortgage free with a nice piece of equity on your hands.

Pulling your down payment from an RRSP versus a TFSA also has a lot to do with your personal financial situation. In many cases, a TFSA makes more sense. To find out what's right for you, give us a call and we'll be happy to help.

Thursday, January 12, 2012

A glimpse into the future: The 2012 Realtors Housing Forecast Seminar

Yesterday I had the pleasure of attending the annual conference at the Northlands Expo Centre. I love attending this annual event because it gives me a quick overview of what’s been happening in the real estate market in the last year and also gives me some educated opinions on what to expect in the coming years.
Here’s are some highlights from the forecast:

Speaker 1: Edmonton’s Strength, Peter Howard, President and CEO of the Canadian Energy Research Institute

-nothing really new here. Alberta has oil. This translates to jobs and money. Lots of both!
-Peter explained some of the projects currently in the works as well as projects slated for future development. The amount of money and the size of these projects is staggering.
- Here’s an excerpt from one of the presentation slides: If further development of the oil sands continues, the economic impacts of the existing and currently under construction projects would continue into the future
• Generating $4.7 trillion of GDP Growth
• Direct employment would grow from 132,000 to 533,000 jobs by 2035
• Royalties to the Alberta Government would grow from $3.5 billion to $60 billion per year by 2020. This is based on the assumption that crude oil prices will continue to rise

Speaker 2: Edmonton’s Economic Outlook in the Alberta Context, John Rose, Chief Economist, City of Edmonton

-Canadian domestic conditions remain good, Alberta continues to outperform the national average
-Slower US expansion will slow growth, particularly in Eastern Canada
-2011 has been a solid year for GDP growth & outstanding employment growth in Edmonton
-Alberta’s labour market is beginning to tighten. Unemployment rates that go significantly below 5% will trigger wage increases and higher inflation. Most of the jobs lost in 2008 & 2009 have now been recovered

Speaker 3: Gary Klassen, General Manager of Sustainable Development, City of Edmonton

This was one of my favourite presentations as I really love to learn about the new and exciting projects the City has on its radar. Listening to this presentation made me realize how lucky we are to live in a place with such prosperity and development. John spoke about a few cities in the United States which have decreasing populations and the problems that come with it.
We are experiencing the complete opposite in Edmonton, and we have money to spend on a variety of exciting projects such as:

1. City Centre Redevelopment: there is a 15 month master plan process currently underway to revitalize Edmonton’s downtown. There is a lot of money and time being spent on a variety of projects in our downtown core. These include:

a. the LRT expansion which is currently underway which includes a 30 year plan to extend the LRT in six different directions within the city. The new look and feel of the expansions will be more European in style and feel which will include LRT tracks that weave through communities using low-floor technology instead of the old style where the tracks cut communities in half

b. Proposed Sports & Entertainment District: new arena project: this project has been hotly debated in the last few years but now has the go-ahead

c. The Quarter’s downtown: I actually heard this new project being discussed on CBC radio this morning. It is a city initiative to revitalize the area east of Jasper Avenue & 97th street. Apparently when the Hudson’s Bay Company moved out of this area in the early 1900’s the neighbourhood became rundown and has been so ever since. The City has spent a lot of money purchasing the land in this area and are upgrading the service lines within the area to get it ready for the future. The plan for this area includes a community housing around 20,000 people in a mixed use area including mostly pedestrian streets and mixed use homes including artist live-work spaces. I am really excited about this project! It’s about time something promising happened to this prime land in the heart of our city

d. West Rossdale: the former power plant (and historic building) will be transformed into a “diverse, sustainable neighbourhood with a broad range of commercial, retail, public parks and other amenities”

e. Other notable projects include: the new, soon-to-be-built, museum downtown and the re-development of the old city airport to a new sustainable neighbourhood

On a side note, I also heard on the radio this morning that the developers that built the Icon Towers on 104th Street have just purchased a surface parking lot on 104th street and 102nd avenue to build another high-rise mixed-use building. 104 Street is one of my favourite places to be on a Saturday morning in the summer...looking forward to seeing this new project break ground. It’s already a great street, sounds like it’s going to be even better!

I am so excited about all of these amazing projects! It’s exciting to live in a place that is growing and improving!

Speaker 4: Economic and Financial Trends, Mike Drotar, VP Treasury, Servus Credit Union

Mike’s main points regarding Canada’s economy were:

-economic growth forecast 2012 +2.3%, 2013 +3.0%
-Inflation at manageable levels 2.1%, midpoint of target range 2012/2013
-Bank of Canada held steady on rates since September 2010. Next move likely in 2012/2013.
-Household debt levels closely monitored and many are at risk in a rising rate environment
His thoughts on the global economy?
-USA faces considerable challenges to regain its influence
-American banking system is stabilizing, a requirement for full recovery
-European banks under tremendous stress, painful austerity measures necessary
-Oil prices expected to remain elevated, average in the triple digits

Speaker 5: Edmonton Housing Analysis, Richard Goatcher, Senior Market Analyst, Canada Mortgage and Housing Corporation

• Full time employment grew rapidly in 2011- expect the housing market to follow in 24-48 months. The average weekly earnings remain on an upward trend, Alberta’s net migration was up in 2011 (still below peak levels).

• Edmonton’s Resale Home Market: ownership costs remain below the peak levels seen in 2007 & 2008 (this makes sense as prices and interest rates are lower than during 07 & 08). The current market still favours the buyer meaning price gains will remain modest in the short term.
• Edmonton’s New Home Market: prices to edge upward in 2012 but to remain below peak levels

• Edmonton’s New Home Market (Multi-Family): 2012 to remain close to 2012 levels, units under construction up 12% yr/yr in November, complete and unabsorbed unts edging downward in 2011 Q4

• Edmonton’s Rental Market: activity levels of rental housing starts have rebounded in 2011 and are higher than in 2007. Improved demand for rental properties have helped vacancy rates come down, as vacancies decrease rents will move upward.

Speaker 6: MLS® System Market Forecast, Doug Singleton President, Realtors ® Association of Edmonton

Forecast (Commercial):
• Industrial and commercial development plus refurbished properties create churn
• Increasing population creates more “Mom & Pop” business start-ups and warehouse condos
• Realtors® continue to serve investors, entrepreneurs

Forecast (Residential Sales, Single Family Dwellings):
• New home construction continues to provide opportunities at the outer edges of the community
• Strong demand for home renovation materials
• Strng preference for a “home of their own” with increased privacy, independence and the “joys” of home ownership
• Labour shortage in Alberta will create in-migration and maintain the demand for home sales

Forecast (Residential Sales, Condos):
• Condo purchase – a lifestyle decision
• Singles, young couples, empty nesters, first time buyers
• Families prefer their own yard and independence

Presentation Summary:
• Housing market- stable with normal patterns (seasonal)
• Prices- fluctuate in narrow range but trending up
• Sales- steady in harmony with seasonal trends
• Average days on market may drop t0 45 days if inventory drops

My two cents: as you can tell from the above, this was a very positive forecast for 2012. All signs indicate that Alberta is a great place to live and work. Interest rates remain at low levels, the real estate market is healthy, and the economy is robust. The future of this city looks bright!

Thursday, January 5, 2012

Interest Rates down again!

Hope you’ve all had a great Christmas and are having a very Happy New Year so far! Wanted to let you all know that the five year interest rate has come down yet again, we are now sitting at 3.29% for a five year, fixed, closed rate!!! I have NEVER seen five year rates this low- if you are considering buying or refinancing now might be the best time to do it!

Link: interest rates