Two years have
past since the Toronto
Real Estate Board (TREB) posted the strongest year for sales on record
totaling 113,040 transactions. In April
2017, the Greater Toronto Area (GTA) experienced a peak average price
of $918,130 for all residential property types which accounted for a 24.5 per
cent rate of appreciation year-over-year.
At the end of 2018,
sales retreated 31.5 per cent for a total of 92,263 transactions since the completion
of 2016 and the average price of all residential properties decreased nearly
$100,000, or 10 per cent, since the peak.
The decade
following the global financial crisis brought forth a decade of low-interest
rates which fueled asset appreciation, namely the value of housing. The results
of a recent online survey we conducted of current homeowners recapitulated
concerns and intentions previously expressed throughout 2016 and 2017. Nearly
73 per cent of respondents remarked that affordability remains top of mind. Among
them, 87 per cent are over the age of 55. Baby boomers at or near the age of
retirement are uncertain where they would go if they sold in either an
appreciating or depreciating real estate market. This feeling of uncertainty
typically arises from an unfamiliarity of the options available to homeowners.
When deciding
whether or not it makes more sense to renovate or liquidate in order to upsize
or downsize, consider your current situation, future goals, as well as the
local and broader markets. First and foremost, take note of the stage of life
in which you find currently find yourself. Options abound for current
homeowners, especially those nearing or already in retirement that have
substantial equity in their homes. Ask yourself the following questions:
How long have you
been in your home?
Traditionally,
real estate is a long-term investment. Historical analysis shows that property
values appreciate over time, hence it is beneficial to consider a minimum of
five years in your current residence. One of the most common mortgages is a
five-year fixed-rate. Selling your home early in the term can be costly when
considering fees to discharge the mortgage in addition to lawyer fees and
commissions to real estate sales representatives. In a rapidly appreciating
real estate market, as was the case in 2016 and 2017, these costs can easily be
offset; however, we are now facing a downtrend in sales and prices compared to
two and three years ago. If you are within the group of homeowners that have
little to no mortgage, your costs can be minimized when opting to liquidate.
Do you plan to
expand your family or have you already outgrown your home?
If there are no
plans to increase the size of your family, it may be apparent that remaining
where you are is the correct choice. On one hand, introducing new members to
your family or accepting extended family into your home may require you to
upsize if you cannot split one room into two or go through putting an addition
on to your current home.
Is your current
residence too much home?
On the other hand,
life circumstances, such as a death in the family or a change in personal
health, may render your home too much space to look after and trigger a move. The
Globe and Mail reported that nearly two thirds of Canadians are over-housed.
In order to lessen hassle and responsibility, some baby boomers and seniors
consider downsizing to smaller accommodations, such as those within
condominiums. Conversely, a 2013
survey by RBC notes that 83 per cent of Canadian boomers regard “staying in their own homes and paying for
home care as needed is by far the most appealing option.” Common reasons include: convenient
location, the sense of independence and safety, and the familiarity of the
neighbourhood; according to a 2017 survey by
the Canadian Association of Retired Persons (CARP) and HomeStars. Instead of
moving would you prefer a few cosmetic changes to enable you to age-in-place? Tax
credits, grants, and loans are available for ageing-relate home renovations. For
instance, the Ontario provincial government offers the Healthy
Homes Renovation Tax Credit for seniors over the age of 65.
Additionally, innovative financing options, such as a reverse mortgage, facilitates
accessing the equity in your home to make the necessary renovations in order to
make your home suitable for your golden years.
Do you like your
location?
The real estate
proverb “location, location, location” is not only significant when valuing
real property, but it is also something you can connect with on a personal
level. If your community has everything you desire, it may prove best to remain
and renovate.
Next, it is
prescribed that you speak with a real estate sales representative or broker who
knows the market well. For many, it may have been years since the last time
they sold or purchased real estate. A sales representative and broker will be
able to provide you inside into current micro- and macro-economic factors
impacting the real estate market at a specific point in time. Depending on the
answers to the questions discussed above in concert with the demand for a home
like yours, a sales representative or broker will help you ascertain the market
value of your property and advise you accordingly as to whether it is a good
time to sell.
Lastly, before
taking a definitive path, consider the advantages and disadvantages of both
avenues have to offer:
Advantages of Renovating
-
Staying put and renovating your home means
you will be able conduct yourself in a manner that suits your exact needs and
desires.
-
Real estate provides you with the benefit
of leverage. Your home enables you to access innovating financing solutions
like a reverse mortgage or home equity line of credit (HELOC), so that you can
utilize the equity you have to pay for the renovation.
-
Renovating your home comes with its own
costs, but in doing so you avoid having to pay lawyer fees, commissions, and
closing costs associated with the sale of your home.
-
Renovating allows you to remain in a neighbourhood
that you love because of the advantages it confers.
Disadvantages of Renovating
-
It is in your best interest to budget for unexpected
expenses. It is not uncommon to encounter issues during a home renovation. This
becomes even more prevalent for large-scale renovations. If what you are doing
simply cosmetic and strictly focused on updating a few of the finishes in your
home, there is less of a likelihood that you will endure these extra costs;
however, if you are planning to open up or remove a wall, you may be surprised
what you will find.
-
Living in a construction zone, dealing
with contractors on a daily basis, and planning the project from start to
finish is not for everyone. Depending on the scale of the project, you may have
to endure the living conditions for months. A solution to this is to live with
a relative or friend or even rent separate accommodations, but remember that
the latter option will mean that you have to work these expenses into your budget.
-
If you plan on living in your home for
years to come, plan the renovation to suit your tastes, but if you think you
will sell in the near future, you should consider the return on your
investment. A purchaser may not share in your appreciation of the finishes you
have selected, which will make recuperating your costs more difficult.
Advantages of Liquidating
-
Selling your home as opposed to renovating
will prevent you from having to deal with the stress typically associated with
renovating, such as planning, living in construction zone, and having to
experience unforeseeable costs.
-
You may be able to purchase a property
that sufficiently suits your needs and desires. A turn-key property will
deliver you a home that has already been renovated and in great condition. This
becomes easier to achieve for those who are downsizing. For instance, seniors
living in a detached two-storey home in the GTA stand to benefit when sell and
purchase a condo.
Disadvantages of Liquidating
-
Depending on the current inventory, you may
not get exactly what you want. While inventory levels have increased across the
GTA, it is significantly comprised of properties that require money or elbow
grease to bring it to modern standards.
-
Those of you who are interested in
upsizing or downsizing, but wish to remain in the same neighbourhood, may be
disappointed to find the process time consuming only to be forced to accept
that you will have to change your location to find something comparable. Will
your new community offer you similar proximity to amenities or will your
children even enjoy their new school?
Considering all
aspects outlined above may prove to be a lot to digest at the moment. It is
highly recommended that you speak with individuals who have a wealth of
experience within the real estate industry. Your options will be illuminated
once you have a clear and concise discussion regarding your current situation,
future goals, the present market, and your propensity to valuing the advantages
and disadvantages of both renovating and liquidating. The sooner that you begin
the conversation, the better positioned you will be when it is time to put your
plan into action.
Comments
Post a Comment