Boomers who own houses worth many times what they paid have a retirement planning advantage that may never be equalled by future generations.
Weaker housing markets in many cities this year remind us that this boomer housing wealth isn’t locked in. Make your downsizing decisions accordingly.
As ever, the story on housing prices is best told on a city-by-city basis. Vancouver sales hit a 33-year low in March and the benchmark price fell 7.7 per cent on a year-over-year basis. Sales in Toronto were flat, while prices edged up marginally. February data for other cities showed Calgary, Edmonton and Halifax were down, Winnipeg was up a bit and Ottawa, Montreal and Saint John were strong.
But there are national trends that can’t be ignored. A prime example is growth in mortgage borrowing, which fell to a 17-year low at the end of last year. The Better Dwelling blog recently said the latest mortgage borrowing numbers suggest annual growth at the lowest rate since 1983.
Resale home prices fell 5.2 per cent on a national average year-over-year basis in February and sales dropped to a 10-year low. Brutal winter weather may have played a part, but higher mortgage rates than a year ago and tough mortgage lending rules are factors as well. What weighs on housing isn’t going away.
The positive spin on home prices is that mortgage rates have pulled back a bit from recent highs and are still cheap if you judge on a long-term basis. You can still find five-year fixed-rate mortgages around 3 per cent, which is a big help in the expensive markets in and surrounding Toronto and Vancouver.
Both financially and lifestyle-wise, there are good reasons for boomers to continue living in their pricey homes and put off downsizing indefinitely. The best way to see your grandchildren regularly is to have a home where they and their parents can settle in comfortably when they visit. There’s also a high degree of cost predictability when you stay in your family home. Big expenses are inevitable when you own a home, but at least you’ll have an idea of what might need repair next.
Another benefit of staying put in the family home is that you don’t need to be a real estate market watcher. You’ll most likely sell your home way in the future because it’s too big a burden and move into a retirement community or long-term care facility. Your move will happen when it happens.
Downsizers need a greater sense of urgency. Getting less than expected for your family home could negatively affect your ability to move into the urban condo or townhouse you want without taking on a later-life mortgage. Ideally, you’re done with mortgages in your 50s.
People who need equity from their family home for retirement are under even more pressure to get the most they can. Turning home equity into retirement savings is like a do-over for people who weren’t able to save in their working years. If they don’t get this transaction right, they’ll have to consider options such as working longer or living on a lower income in retirement.
If you’re downsizing, you need to watch the market for turns such as the one Vancouver has taken. A recent Globe and Mail story documented how the value of some properties in the city have fallen by hundreds of thousands of dollars and more. Vancouver was especially overheated – it’s not a model of what’s coming elsewhere. But it does highlight the risk for downsizers in procrastinating.
Another way to attack the question of when to sell is to ask yourself this question: How bad will I feel if I get less for my house than I could have if I’d sold sooner? The field of behavioural economics tells us people feel the pain of losing money more than they enjoy gains. You could interpret this to mean you’ll be grinding your teeth for years to come if you wait too long to sell. Make your downsizing decisions accordingly.
Are you a homeowner worried about rising interest rates? If you would like to share your story with The Globe and Mail, contact reporter Rachelle Younglai at ryounglai@globeandmail.com
Rob Carrick