Planning Ahead: Smartsizing

Brokers and real estate sales representatives represent the proverbial boots on the ground working with supply and demand in the real estate market. They handle inquiries and feedback on the process, product, and experience buying and selling intentions directly through transactions. A recent survey we conducted in 2018 concluded with 73 per cent of respondents declaring that affordability remains top of mind which also reflected the findings of Royal LePage survey released in the same year found that 63 per cent of baby boomers view their market as unaffordable

 The annual average sale price reported by the Toronto Real Estate Board (TREB) Multiple Listings Service (MLS) increased each consecutive year over a twenty-one-year period spanning from 1996 through to 2017. Over these years Canada has experienced increased immigration, decreasing property inventory, and historically low interest rates.

By January 1, 2018, the stress test implemented by the Canadian federal government spread to both insured and uninsured mortgages, so that no matter if you put down the conventional twenty per cent down payment or not, you had to undergo qualification at a rate that the higher of either the Bank of Canada qualifying rate (currently 5.34 per cent) or two per cent above the contracted rate to ensure safety against rising interest rates. At the end of 2018, the Bank of Canada increased the interest rate for a fifth time over a two-year period.

Cheryll Case and Tetyana Bailey (2017) summarize that 77 per cent of Toronto’s total inventory of housing had been developed by 1986. Case et al (2017) recognize that,

Most of this land is occupied by detached houses built for more people than

what currently inhabit them. Despite this, over the past thirty years most of

Toronto’s neighbourhoods have added no or little housing stock to the exis-

ting supply. As a result, many are over housed, and families are excluded fr-

om entering most of Toronto’s neighbourhoods.

Historically low inventory, the Places to Grow Act, slow approval processes, increasingly costly to build, maladapted zoning regulation, it’s easy to understand that this assemblage of factors has brought us to where we are today with high prices for condos and freehold properties alike and a lack of a mixture of housing.

Most people are familiar with the term downsizing. While downsizing is something most homeowners will do in their lifetime, it is simply a component of what we like to call smartsizing. Smartsizing involves purchasing a home that best suits your lifestyle, budget, and needs at various stages of in your life. Smartsizing involves conscious and deliberate planning and applies equally to those taking first step into the housing market, property ladder climbers because of an expanding family, and baby boomers and seniors with shrinking or empty nests considering downsizing options in order to simplify their lives. Hence, there is a recognizable twofold benefit to planning ahead and smartsizing: maintaining or reducing maintenance activities and maximizing productivity.

As individual players, we consider the opportunities we see in the market place from our own vantage point whether we are single or a couple, young families starting out or mature individuals or couples, retirees, or domestic or foreign investors. The associated costs and stresses involved in buying and selling real estate, you do not want to do this too often. So, carefully consider your needs pertaining to the size of home you will need over the next ten to twenty years and make a timely decision.

Starting with first-time home buyers, it may involve one of several approaches. Purchasing pre-construction enables you to have more time to save up the down payment required by the developer, since the completion date will typically be between three and four years from the initial signing of the purchase agreement. Alternatively, you may consider purchasing a resale property and delay moving in. Instead, you can find a suitable tenant to lease your property. The tenant will pay down your mortgage as you build equity. One year or more own the road you may considering it is time to take possession of the property or, given positive market circumstances whereby values have appreciated, you can sell and climb the property ladder or refinance and purchase another property. Similar to the previous approach, another option involves purchasing a freehold property with an in-law-suite or a duplex. Leasing a portion of the home while occupying the rest will lessen the burden of monthly expenses. Lastly, your first purchase may involve acquiring a home that you will grow into over the coming years as your family becomes larger.

As we progress through life, household composition becomes smaller or too cumbersome for individuals to maintain. The need to downsize is apparent; however, our approach to this aspect of life will determine whether we there is a more positive and beneficial outcome lest the converse be true.

Advancements in healthcare, technology, and financing provide tools for the aging population to utilize in order to age-in-place. However, this may not be the case for all. Will your next move be choice or circumstance? Brokers and sales representatives recognize the need to plan ahead of life events like growing and shrinking household composition. Baby boomers and seniors make up the largest cohort of owners in Canada and are allotted a substantial number of options compared to other individuals that make up the demand for real estate. The Boomer Trends Survey by Royal LePage found that nearly seventeen per cent or 1.4 million boomers are planning to buy and sell real estate by 2023 and only half plan to downsize in Ontario.

Bungalows are disappearing and, in their stead, large multigenerational homes are being built. Many new condos being constructed average less than 900 square feet of interior living space, only half of baby boomers plan to downsize their current living arrangements. This leaves the other half of boomers looking to purchase similarly sized properties. Over the years, in our anecdotal experience we have found many boomers attempt to accommodate their current furniture by pursuing properties that are no smaller than where they now live. This may be possible depending on your income bracket or the type of product you are downsizing from and which you are moving into, but for many the likely scenario involves having to sort what you will keep, sell, and donate.

Recognizing the necessity to smartsize and assessing your current and future needs will enable you to plan ahead and utilize tools necessary to age-in-place or, much like the first-time home buyer, purchase in advance of a life changing event in order to minimize stress when the time comes. In addition to savings, you may have an array of financial tools at your disposal to actualize a purchase. You would maintain your current residence and use the property from your purchase as investment at the beginning. As discussed earlier, a tenant will pay down your mortgage until you are ready to move in and you will be able to deduct mortgage interest against your income annually. According to those polled, 46 per cent of boomers are open to living in condominiums. Sturdy older condominium buildings offer more space typically with lower prices when compared to newer buildings and come with higher maintenance fees that more often than not includes utilities and other amenities. When it is time to move into your smartsized home, you would sell your current residence or, if you or your family have the wherewithal, they can maintain your current residence as an investment property in to maintain a stream of income.

The other option for boomers and seniors to maximize productivity and minimize maintenance, is to move out of the city where their dollar goes much further in terms of space. It is important; however, or them to counterbalance moving out of an urban centre with access to essential services. In other words, you will want to have a strong infrastructure and technological network in order to help care and support your needs in the latter years of life. Proximity to transportation lines along with legal and medical facilities are significant factors in determining where to live. While you will get more land moving from a freehold property in an urban centre like Toronto to outside of the Greater Toronto Area, if your support network is stronger in the city, it may be prudent to smartsize into a condo somewhere in the city.

Connect with a good local professional in the real estate industry and discuss all the possibilities. Speak about your priorities, budget, timeframe; and both short and long-term goals. Make sure your forthcoming real estate transaction is not one of circumstance, but a smart choice!