Garry Marr: Are young FHSA savers about to get duped again?

Article content

Buy that home, and you will be able to take all your accumulated money out and pay no tax on it. That’s a strong incentive to, at some point, buy that home.

Article content

Phil Soper, president of Royal LePage Real Estate Services, one of the largest brokerages in the country, said there is more chatter than ever about the accounts and they are making their way into most first-time buyer deals.

Article content

“It has hit its stride,” said Soper, adding that even with housing markets off 20 per cent from the peak, it is hard trying to get together enough of a down payment to avoid mortgage default insurance, which can cost from 2.8 per cent to four per cent of the value of your mortgage. The insurance, which protects financial institutions in the event of default, is required if you have a down payment of less than 20 per cent.

Article content

Soper can sympathize with the argument that the stock market is performing better than the housing market, but he said some real estate markets are rising, and some equities are seen as overvalued today, and for some people buying a house makes sense. In that case, it is reasonable to use the FHSA, he said.

Article content

Article content

“It’s there and a new tool, but if the time is right for you and your family to get into homeownership, it’s probably the right time to pull the trigger,” he said.

Article content

Peter Wouters, a principal of financial advisory PlainTalk Consulting Inc., said buying a home is different from any other investment and added that timing the purchase is not always aligned with life stage. But he said that doesn’t mean you can’t maximize what is available under the FHSA today.

Article content

His son just bought his first home recently and made FHSA contributions a few weeks beforehand, even though he is pulling the money right back out to pay for the home. “They (homebuyers) still get the deduction for it, then they put the money (toward) their down payment,” said Wouters. “Even if you are just putting $100 in the account, open one.”

Article content

Wouters said delaying that home purchase, hoping for a larger FHSA, probably doesn’t make sense given it’s still tough for first-time buyers to find affordable homes. “You still want to get your payments down to a decent level and not have a 35-year (amortized) mortgage,” he said. “You are just paying the bank. Where else are you going to get the money?”

Article content

Article content

Other factors, such as rising mortgage rates, could also drive up housing costs even if prices are relatively stable, making the returns on your FHSA less meaningful, said Wouters.

Article content

Ted Rechtshaffen, president and chief executive of TriDelta Private Wealth, said at the end of the day, a home has to fit your personal needs and goals more than financial targets.

Article content

“This is your home, so the more important thing is, are you ready financially or emotionally? If you are, I wouldn’t let the markets decide timing,” said Rechtshaffen.

Article content

Mortgage broker Butler is adamant that people should stop thinking of their houses as investments, and said the market downturn is driving people to make purchases based on life events such as having children.

Article content

Butler sees a growing cohort that isn’t as concerned about temporary price drops because they are buying for the long term, but recognizes that today, you may be grabbing a falling knife in the housing market.

Article content

Even if your FHSA is rising rapidly due to appreciating investments within it, but you have decided to buy that first home, go ahead and cash in your tax-sheltered FHSA to buy it. But don’t feel any pressure to get into home ownership now, because those balances are going up, and housing can’t compete today as an investment.

Article content

Article content