Canada’s Baby Boomers are looking to downsize their homes in the next five years; this move should boost the supply of single-family homes and prove important for current condo owners. This trend could also have a major impact on the housing market and home financing. Research has shown that 10% of Baby Boomers 50 years and older plan on selling their existing home and buy or rent a smaller home. Research has also shown that 85% of baby boomers own a detached home, 6% live in a semi-detached, 3% live in a condo and 2% live in a row or townhouse. The primary reason for downsizing for baby boomers includes wanting to reduce maintenance work, cost of living and the desire to travel more.
Baby Boomers have built up a significant amount of equity. Many Baby Boomers have got into the housing market years ago, which means their homes have gone up in value. This is good news for condo owners who are planning on selling their units in the near future, especially those that offer upscale comforts and lifestyle communities that Baby Boomers demand. 50% of Baby Boomers say that they may considers downsizing to a condo or apartment.
StatsCan has said that the main contributor to baby boomers downsizing is that there has been an increase in the market value of real estate, which as resulted in price increases. The single most important asset for Canadians is their principal residence. StatsCan has communicated that net worth typically increases with age, partly because many older people live in mortgage-free homes. Research has shown that the median net worth of Baby Boomers age 65 and over is roughly $443,600 which has been a significant increase compared to previous years.
The generation ahead of the Baby Boomers, people now in there seventies or older has already done much of its home downsizing. They’ve moved into condos or smaller bungalows. And the generation following the Baby Boomers has purchased homes when prices were much higher. Baby Boomers may be planning on tapping into their equity, perhaps move into smaller homes, but the home financing industry is confident they will remain in the housing market and many will require home financing for years to come.
Baby Boomers are using their lines of credit and other means of financing to renovate their homes, purchase vacation homes, help their children buy to homes, purchase investment properties such as downtown condos for rentals or invest in the stock market. There has recently been some reducing of housing demands, which can have an impact on construction and housing prices. The housing market is not just dependent on demographics. Income is generated by strong economic growth. There has been an increased demand for vacation properties, adult-lifestyle communities and high-end condominiums as Baby Boomers move into the downtown areas from the suburbs. The good thing is this allows people to get into the housing market because monthly payments are lower over the longer amortization period. But the total interest costs are higher over the long term. The total interest costs over the life of a 35-year mortgage are 50% more expensive than over a 25-year period.
In today’s society there are some younger Baby Boomers, in their late forties that are moving into bigger houses while their cash flow is still strong, they are also taking out equity to upgrade the property. Baby Boomers have always enjoyed displays of status and a home is most people’s biggest status symbol. As homeowners pay down their mortgages, they have more money available to them in the operating line. This is meant to help homeowners customize their new or existing home in order to accommodate them as they age, with features such as framing for future elevator shafts and more accessible bathrooms and kitchens.
For many Canadians, their homes are their largest investment and they’ll need them to finance their retirement. They can do this by downsizing to a less expensive home, or by remaining in the home and taking out reverse mortgages. Reverse mortgages are available in Canada to those Canadians age 62 or older. Reverse mortgages provide holders with a lump sum payment of up to 40% of the appraised value of the home up to a maximum of $500,000, based on age and life expectancy. For those who use them for living expenses, the payouts are tax-free.
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