BJK Financial Group Blog

Source: The Canadian Press. Published April 4, 2024.

The recent forecast by the Canada Mortgage and Housing Corp. (CMHC) predicting home prices reaching peak levels by next year and potentially setting new highs by 2026 has significant implications for families across Canada. As a financial advisor, it's essential to analyze the potential impact of these projections on family finances and provide insights into effective budget planning strategies.

Main Points:

Affordability Concerns: The CMHC report highlights affordability challenges in the home ownership market for the next three years. Despite a recent decline in home sales and prices, the forecasted decline in mortgage rates and robust population growth are expected to drive a rebound in home sales and prices. This could make it increasingly difficult for families to afford homeownership, especially in regions with high demand and limited supply. Families may need to reassess their budget priorities and consider alternative housing options to maintain financial stability.

Rental Market Dynamics: Despite an increase in rental housing supply projected for 2023, the CMHC suggests that supply may not keep pace with demand, leading to higher rents and lower vacancy rates. This could significantly impact families who rely on rental accommodation, as higher rental costs may strain their budget allocation. Families renting homes may need to anticipate potential rent increases and incorporate them into their long-term budget planning to ensure financial security.

Housing Starts and Construction Trends: The CMHC forecasts a decline in housing starts in Canada for the current year, with a potential recovery in 2025 and 2026. This reflects the lagged effect of higher interest rates on new construction. Understanding these trends is vital for families considering homeownership or investing in real estate. It implies potential delays in new construction projects, which could influence housing availability and prices in the future. Families planning to purchase newly constructed homes may need to adjust their timelines and expectations accordingly.

Impact on Family Finances and Budget Planning:

• Evaluate Housing Options: Families should carefully assess their housing needs and explore various housing options, including renting versus homeownership. Conducting thorough research on local housing market trends and affordability metrics can help families make informed decisions aligned with their financial goals.
• Budget Flexibility: Given the projected fluctuations in housing costs, maintaining a flexible budget is crucial for families to adapt to changing financial circumstances. Allocating a portion of the budget towards housing-related expenses, such as rent or mortgage payments, while also prioritizing savings and emergency funds, can provide a buffer against unexpected costs.
• Long-Term Financial Planning: Incorporating housing market projections into long-term financial planning is essential for families aiming to build wealth and achieve financial security. Consulting with a financial planner can help families develop comprehensive financial strategies tailored to their specific goals, risk tolerance, and market conditions.

In conclusion, the CMHC's report on projected home price peaks emphasizes the importance of proactive financial planning for families. By understanding the implications of these projections and implementing strategic budget planning measures, families can navigate the evolving housing market landscape with confidence and ensure their long-term financial well-being.

I have been writing about the challenges facing first-time Canadian home buyers for a couple of years now. Most of my thoughts have centered around the tax-free First Home Savings Account (FHSA). It is not the same thing as the First-Time Homebuyer Incentive (FTHBI) that the Canada Mortgage and Housing Corporation (CMHC) closed last week. And from everything I have read about the program it was not all that popular and not a lot of families used it to help with the purchase of their first home. So…

When CMHC launched the FTHBI they had a stated goal of 100,000 approved buyers by March of 2025. But according to a graph reproduced in a CBC story describing the program’s cancellation it had only around 18,500 participants by 2022 and the growth the program was demonstrating offered no sense that it would ever come close to achieving its goal. In fact, the story went on to describe how the Toronto mortgage broker who agreed that "We had a lot of young Canadians asking about this program" but only two of her clients ever qualified.

Why did the FTHBI fail?

Common complaints about the program were that it had upper limits on household incomes for qualified participants. For instance:

• The household income ceiling was $120,000
• You had to already have the minimum down payment saved up
• Your maximum mortgage could not exceed four times your income (ie. Not greater than $480,000)
•  The federal contribution was considered equity in the home, payable upon its sale (commensurate with the price of the house when it’s sold)

Even when I listed average real estate prices in Kitchener last August, even a condominium cost more than $480,000. Less as your income dipped below the income threshold.

In addition, income and mortgage maximums were somewhat higher in the costliest cities of Toronto, Vancouver and Victoria.

The fact that CMHC would have equity in the home was especially troublesome for many people who looked into it and ended up seeking other options.

In the end, the program did not serve the needs of first time home buyers and it basically got cancelled due to lack of interest.

 So, let’s go back to the FHSA

The FHSA was a new program introduced last April. I guess that means the program will soon reach its first anniversary. And as I described it last fall, the program works like an RRSP. It is tax-deductible and has a lifetime limit of $40,000 and yearly limits of $8,000.

And then there is also the Home Buyer’s Plan that allows for transfers from your RRSP. And just to be clear, you can do that with your FHSA too.

The important thing is that with all of these conditions and qualifications (some set by the financial institution you have the funds with) you really do need to consult with your advisor for the proper advice for your situation. Because every situation is different.

Buying a house is a big financial decision. Make sure you understand all your options

The demise of the FTHBI demonstrates how difficult it can be to offer the right help in Canada’s ever changing real estate market. And maybe the FHSA will be able to help Canadian’s more effectively. 

Whatever else, it is still a challenging experience. Figuring out the financial details - on top of finding a home that you can afford and enjoy - can be stressful. Finding the right professionals to help you through the process - like real estate agents and financial advisors - will help you make the best of a situation that can be both exciting and stressful. If you want to talk through your options, please feel free to text or call me at (519) 279-0186 or email me at [email protected]. You don’t need to go through this alone.

Well, it’s time once again to finalize our income taxes and that includes reviewing and topping up our RRSP contributions for the previous tax year. So, as you look over your tax bill for 2023, I want to help you think a few things over. There is so much information out there that seems contradictory and can end up just confusing you. I would like to think that I can help you make sense of it.

How much money do I need?

One of the most common questions I get from clients is: “How much money do I need to put into my RRSP for retirement?” It’s a sensible question and here’s a sensible answer.

If you look at the income statement I have included here, you will see a trial account with $700,000. This account is set up with monthly withdrawals of $3,000 and an expeceted rate of return of 5%. This is a reasonable rate of return to count on over the long haul. As all of us know, rates of return our investments constantly fluctuate and are affected by many factors. Some of those factors are within our control and some are not. It’s what makes so much of this so “interesting”.

As you can see from this test result there is enough money in the account to last for 30 years - in this scenario from age 65 to age 95. Of course, this would not be your total income as you will also have CPP, OAS, and whatever money you can find stuck between the cushions of the couch.  

As you can also see, this is based on a tax rate of 35%. It’s important to point out here that when you take money out of your RRSP it is considered taxable income. The reason we scramble to put money into our RRSPs at this time of the year is that any money set aside deducted from our taxable income for the current tax year, up until the end of February of the following year. Money put aside in an RRSP is considered deferred tax money, and when you take that money out during retirement, then you will have to pay the tax on it then.

That’s different from a TFSA (Tas Free Savings Account). Money you put into your TFSA does not affect your taxable income for that year, so you don’t have to run around putting money into it just before tax time. Just like your RRSP none of the savings that build up in the plan are taxed. But the difference is that when you eventually take money out of your TFSA, you do not have to pay any income tax on it, no matter whether we are talking about the original principal or any increased savings that have built up since.

Here is a retirement income calculator you can use to get an even better idea of where your savings are and how well you might be doing in comparison to what you hope to achieve.

Every case is different. Let’s talk.

I know this is just the beginning. While you may be in a hurry to make this year’s RRSP contribution in time for your 2023 tax return, it’s also important to set things up for the long haul. And we can work together on both those goals.

So, let’s get started. Give me a call at (519) 279-0186, email me at [email protected], or visit my website at www.bjkfinancialgroup.ca. I look forward to chatting with you.

RSP Contribution Deadline

As you may know, February 29, 2024, is this year’s deadline for contributing to an RRSP.  Your RRSP contribution limit is the lesser of 18% of your income from the previous year or the annual limit set by the CRA (up to a maximum of $30,780 for tax year 2023).

Whether you wish to make a new contribution, renew a matured investment, or set up a pre-authorized debit program in your account, I will be glad to assist you and discuss your investment strategies.

2024 TFSA Contribution amount.

As you may already know, Canadians over the age of 18 may contribute up to $7,000 in 2024 to a Tax-Free Savings Account (“TFSA”). This new limit means that an investor who has never contributed to a TFSA and has been eligible for one since its inception will have a cumulative contribution room of $95,000.

The advantage of the TFSA is that it lets you grow your savings tax free. With the TFSA, your money can be deposited and withdrawn at any time depending on the terms and conditions of the investment option chosen. In addition, unused contribution may be carried forward from one year to the next for added flexibility.

A TFSA would be a great way for you to save for your short-, medium- or long-term goals.

Make the Most of RRSPs and TFSAs

Saving for retirement is typically the biggest and most important of our long-term goals. Who doesn’t want to spend retirement enjoying their preferred lifestyle? Two popular vehicles to help Canadians save for retirement are the Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Account (TFSA). Let’s look at the basics of each savings vehicle. For more information, click here.

Benefit from professional advice

Deciding which savings plan to prioritize and what investments to put into your plan(s) can be difficult. Both plans are effective at helping you save for retirement and generate the income you’ll need. Your advisor can help create a retirement savings strategy that reflects your preferences and financial circumstances.

Book an Appointment today if you’re ready to start investing for your financial future.

As we approach the holiday season, I would like to wish you all a Merry Christmas and a joyful New Year.

This time of year, we are thinking more of family gatherings, presents under the tree and the inevitable January credit card bill that investing. But I know your savings are never far from mind.

The one piece of advice I would like to give before you consider investment contributions, is to first pay off that Christmas credit card bills.  It also prudent financial advice to pay off your high credit cards, Lines of credit first and foremost.

Once the Christmas bills are paid, I want to remind everyone that January also is the start of, what we have all come to know and love as, RRSP season.  Therefore, thought this would be a good time to review just what are RRSPs and TFSAs.

Make the Most of RRSPs and TFSAs

Saving for retirement is typically the biggest and most important of our long-term goals. Who doesn’t want to spend retirement enjoying their preferred lifestyle? Two popular vehicles to help Canadians save for retirement are the Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Account (TFSA). Let’s look at the basics of each savings vehicle.

RRSPs

The RRSP generates retirement income to supplement personal savings and company/government pension plans. You may open an RRSP once you begin earning taxable employment-related income. For each calendar year, the maximum contribution is 18% of earned income, to an upper limit set by the federal government. If you don’t make your maximum allowable contribution in a given year, you may carry forward unused contribution room to future years.

Your maximum annual limit is reduced if your employer makes contributions for you to a registered pension plan (RPP) or deferred profit-sharing plan (DPSP). Check your income tax return statement for the next year’s RRSP contribution limit, and your annual T4 tax slip for how much your employer has contributed to your RPP and DPSP.

RRSP contributions are tax deductible, reducing income tax payable. Investments you may hold in an RRSP are wide ranging, from mutual funds and stocks to bonds, GICs and more. If your investments earn capital gains, dividends, or interest, that growth is not taxed until you begin withdrawing assets (you may convert your RRSP to a Registered Retirement Income Fund or annuity no later than December 31 of the year you turn 71). Tax-deferred growth allows you to build wealth more effectively than paying tax on growth as it’s earned.

TFSAs

This savings vehicle started in 2009. You may open a TFSA once you turn 18, and contribution limits are set by the federal government rather than being a percentage of earned income. The government occasionally increases the annual contribution limit based on inflation rates.

Similar to RRSPs, a TFSA can hold different investment products, and any growth won’t be taxed when earned. In fact, you’re never taxed on TFSA withdrawals since you’ve made contributions using after-tax dollars, while RRSP contributions are made with pre-tax dollars. As with any investment, the value of your holdings may decline. Historically, investments have tended to rise over time, but it’s not guaranteed, and you’ll likely experience periods of volatility where your investments rise and fall based on economic/market conditions.

There’s no mandatory age limit to begin TFSA withdrawals, and if you do withdraw some money, you may recontribute this amount later (just not the same calendar year) without penalty or impact on subsequent annual contribution limits.

RRSP or TFSA?

If possible, it’s valuable to maximize contributions to both plans. But if you’re not in a position to do so, consider your financial situation to help determine the better plan to focus on.

For instance, an RRSP is often suitable if you’re in a high tax bracket but expect your income to be lower in retirement. That’s because the tax deduction from RRSP contributions and the savings from tax-deferred growth will be relatively high. If you’re in a lower tax bracket in retirement, your withdrawals won’t attract as much tax as they would have during your higher-income years.

Conversely, if you’re in a lower tax bracket and are less impacted by income tax – on a relative basis – than a high-income earner, consider prioritizing TFSA contributions since upfront RRSP tax deductions won’t be as advantageous. Also, if you’re saving for a large purchase, such as a vehicle, home or vacation, a TFSA helps build your savings on a tax-free basis. When it’s time to make your purchase, you can withdraw the funds without tax consequences and will maintain contribution room for future years.

Benefit from professional advice

Deciding which savings plan to prioritize and what investments to put into your plan(s) can be difficult. Both plans are effective at helping you save for retirement and generate the income you’ll need. Your advisor can help create a retirement savings strategy that reflects your preferences and financial circumstances.

Book an Appointment today if you’re ready to start investing for your financial future.