We are twice the nation we were
Canadians are taking advantage of boom to buy second properties
Garry Marr, Financial Post
To understand why Boomers are investing in real estate simply look at how much prices have gone up. A decade of capital appreciation in the residential market has convinced many middle-aged consumers to make real estate investing not just about the home they are living in, but about a second property.
“In the early to mid-1990s, people had a sense that real estate wasn’t a good investment. It wasn’t going to keep pace with economic growth. People would purchase homes for lifestyle reasons only,” says Peter Norman, a senior economist with Altus Clayton, a real estate research firm. “The tide turned as values started to increase. We’ve had a housing cycle in the last 10 years where house prices have increased at a steady to fast pace. When you see values steadily climb, that appeals to most people. And then you have stock markets go through two undulations: the tech crash and the [subprime] financial crisis.”
The average price of a sold home across the country through the first nine months of this year reached $324,312, according to the Canadian Real Estate Association. A decade ago, the average price of a home sold across the country was $154,606.
What Is A Boomer? The demographic cohort, by the numbers. Born between 1947 and 1964. Boomers are less likely (52%) than either young adults (63%) or seniors (62%) to reject the idea that there is no use worrying because tomorrow usually takes care of itself. Boomers are more likely (11%) than Generation Y (2%) to report not having any savings plan at all. While the tendency to live beyond your means decreases with age, Boomers (20%) land closer to young adults (33%) than to their parent’s generation (8%) in doing so. Boomers are saving for home renovations (30%), followed by a dream vacation (23%). SOURCE: HSBC DIRECT SAVINGS SURVEY FOR HSBC BANK CANADA BY INNOVATIVE RESEARCH GROUP
A Statistics Canada survey shows real estate investing has been on the upswing over the past six years. The federal agency’s Survey of Financial Security found the dollar value of real estate holdings, not including principal residences, rose 80.5% from 1999 to 2005.
The median net worth of the nation’s 13.3 million families was $148,400 in 2005, up 23% from a 1999. The median net value of a principal residence was $87,000. The median value of other real estate was $85,000, but the corresponding figure for debt was $90,000 –an indication many Canadians are financing second properties and hoping for some capital appreciation.
“A significant change in the composition of assets during the six-year period was growth investments in real estate such as cottages, timeshares, rental properties and other commercial properties,” says StatsCan.
Mr. Norman says second-home ownership goes up as people age. On a national basis, only 2% of households headed up by someone under the age of 34 have a second home. It is 7% for people 35 to 45 years old and peaks at 12% for people in their 50s, says the economist. By the time people hit 65, they sell their second properties.
“It’s really hard for surveys to quantify this sort of thing because there is so much diversity of product. Sometimes, you have a family owning a cottage and people using it, other times people have a cottage, use it two weeks of the year and then rent. That’s more of an income property. Then you’ve got timeshares where the investment can be very low,” says Mr. Norman.
The numbers he cited for second-home ownership do not even include investment property and, therefore, the condominium market. Some have suggested as much as 25% of the condominiums in Toronto and Vancouver are owned by investors.
Paul Arn, says he knows who is buying and they are older professionals looking for an investment property. He says the rise of the luxury hotel/condominiums like Trump Tower, the Shangri-La Toronto and the Four Seasons Hotel and Residences — trophy buildings — is being driven by these investors. “They’re in their mid-40s, they’re professionals and they usually have a net worth of $5-million to $10-million,” says Mr. Arn.
A survey on the luxury housing market found 25% of homeowners with $1-million principal residences own a second property. Another 6% own three properties and 2% own more than five properties.
Don Lawby, says he’s noticed the trend of older couples refinancing the mortgage on their principal residences for an investment. “It’s usually a second property that they plan to rent,” says Mr. Lawby. “Sometimes it’s so they can buy recreational property.”
He says second properties can be difficult to finance but if you have plenty of equity in your main residence, it is easy to use that cash for other purposes. “There are a lot of people buying second homes now. It’s not even just recreational properties. It’s investment properties. The real estate market has been good, so they are buying.”
————————————————————————————————————
Contact the Jeffrey Team for more information - 416-388-1960
