Toronto real estate is a hot topic right now as calls are increasing for the government to try and put the brakes on the city’s housing market. Last week finance minister Bill Morneau resisted any urge to do that with his second federal budget, so all eyes are now on his provincial counterpart Charles Sousa. The governing Ontario Liberals will announce its budget in April and signs indicate there will be some measures to curb house price inflation in the GTA.
Is It the Right Time to Sell?
Such a move will be welcomed by anyone trying to get on the property ladder, but the opposite is true for those considering selling their home. There’s a feeling that Toronto prices may have reached their zenith, and the prospect of a housing correction down the line is certainly something to consider. That’s especially the case for retirees, many of whom are deciding to downsize their home to finance their golden years.
For many older Canadians, their home is their most valuable asset. In situations where the kids have long fled the nest, taking advantage of a seller’s market makes perfect sense. While selling your home in the GTA isn’t difficult in the current climate, there are long-term implications to consider, and especially if you are only recently retired.
Consider Decades of Equity Growth
Shelley Johnston is a financial planner at the Investment Planning Counsel and creating retirement plans is a major part of her job. Increasingly, selling the family home is a popular option for retirees, especially in the GTA where detached homes regularly sell for $1.5 million-plus.
Related Read: Priced Out of the Detached Market? Consider Townhouses
In Johnston’s view, when you are talking to baby boomer clients, a financial plan needs to reflect if they are children of the 1940s, 50s or 60s. Canadians live longer nowadays, so financial plans need to reflect that. It’s something that needs to be factored in before selling your home.
“For some of our older clients, 85 and above, they stay in their home as long as possible, either until death, or are forced into a retirement home due to health issues,” she says.
Is Renting the Right Answer?
Retirement homes do not come cheap, however, so selling the family home is often the only option in these circumstances.
For younger retirees who can expect to live for another 10-20 years, many are deciding to sell their home at the top of the market and live their later years in a smaller house, but with little financial worries.
“Some of my older clients are selling and either downsizing to a condo or renting,” says Johnston. “The up-keep on a house, yard work and regular maintenance means they are selling and taking the money and running. They are afraid of a market correction and losing their home equity as they don’t have as much time to wait for the market to recover.”
The Snowbird Lifestyle
Others decide that selling their home and renting is preferable as they don’t want to be in Canada for its famously harsh winters. For those with seasonal migratory patterns, renting is often much less hassle.
“For snow birds, it is easier to rent … lock the door for the winter and off you go, no worries about who is watching over the house,” she says.
There are clearly advantages to renting over home ownership, but plenty of potential pitfalls too. If you decide to sell your home in your 60s, you need to be sure you can afford rent, conceivably for the next 20 years or more. According to recent data from TREB, the average rent of a two-bedroom condo in Toronto is now $2,415, so it’s a considerable expense for those on a fixed income.
“If you are age 60 and sell now and rent, you may miss out on future growth over the next 20-30 years,” says Johnston. “Many people as they get older count on the equity in the home, so if they take the equity from their home too early, this may mean financial hardship later in life.”
Boomerang Kids Changing Boomer Priorities
In the not-too-distant past, the idea of downsizing on the family home would come at a point when your children had become adults and started families themselves. This is no formality in 2017; the rise of the boomerang generation means that parents could be called on to provide shelter for their children that may even be their mid-30s.
“There are some parents who are afraid of selling, as their adult kids are struggling financially, so the parents are worried and want to step in ad be in a position to take them in, so want to keep the larger family home.”
Being in the financial planning business means advising on such matters, and what to do with your biggest asset, usually your home, is a central part of the process, as Johnston outlines.
“Don’t rush into anything and don’t just sell because of the market, move for the right reasons,” she says. “Ask yourself, does your home fit your currently lifestyle … empty nesters can benefit, sell now while the market is high, and downsize if house is too large and invest the proceeds for retirement.”