When a client's retirement plan is selling a home

Street with colorful houses near ocean in St. John’s, Newfoundland, Canada — © Elena Elisseeva / 123RF Stock Photo

Does your client plan to sell their home to fund retirement? If so, they’re not alone.

A 2017 OSC poll found that 45% of homeowners aged 45 and older in Ontario who are still working are relying on rising home prices to fund their retirements.

Such a plan has risks.

Among several factors clients should consider is timing, says an AGF blog post. For example, Albertan homeowners who were hoping to sell homes and retire last year would have been playing a waiting game, as oil prices weighed on house prices.

Read: How to invest in commodities despite sector challenges

That situation shouldn’t be considered unique, says AGF, referring to Canada’s cooling housing market in the face of tougher mortgage rules, foreign buyer taxes (B.C. and Ontario) and higher interest rates.

A tamer pricing environment is expected in 2018 and 2019, says an RBC housing forecast report. Potential retirees looking to sell won’t necessarily be disappointed, however, as prices remain strong. Considering the other side of the deal, RBC puts house prices in context for house hunters.

“Would-be buyers hoping for a meaningful break will likely be disappointed—we don’t expect aggregate prices to fall on an annual basis either this year or next,” says the report. For example, despite weaker resale activity in 2018, fewer homes are being put up for sale, which contributes to market balance.

The bank projects aggregate prices in Canada to rise a modest 1.8% in 2018 with a slower 0.2% gain in 2019, with provincial variations. Stress-testing on uninsured mortgages, effective this year, will have larger and longer-lasting dampening effect on resales than previously assumed, says the report, adding that most of the drop in sales will come from Ontario and B.C.

Read: National home sales tick higher in July, but housing hurdles remain

A slight increase in sales is forecasted for 2019 (1.6%) on the back of a positive economy. However, the headwind of rising rates is expected to leave the level of housing activity below the 10-year average in 2019.

RBC expects the Bank of Canada to hike its overnight rate three more times to 2.25% by mid-2019—a rise of 75 basis points. It also expects longer-term rates to climb, with Canada’s five-year bond reaching 2.7% by mid-2019, from less than 2% at the start of this year.

“These rate hikes will make it even harder for first-time buyers to qualify for a mortgage and increasingly impact existing owners as well,” says the report. For example, clients with fixed-rate mortgages will face a higher rate for the first time since 2008 when renewing a maturing five-year term. “Markets where affordability is stretched and household debt is high will be most sensitive to a rise in interest rates,” says the report.

Indebted households can include seniors: 66% of retirees carry credit card debt, and 20% still make mortgage payments, a Sun Life poll found in 2017, which shows that selling a home isn’t an option for some. As AGF notes, funding a retirement with a home assumes the home is paid off. AGF poses this question: How will retirees handle these payments when they don’t have the same cash flow as in their working years?

The table below shows RBC’s home price forecasts by province for this year and next:

Province	Increase in aggregate home price (2018/2019)
B.C.	5.7%/–1.0%
Alberta	0.5%/2.2%
Sask.	–0.2%/1.9%
Manitoba	No change/1.5%
Ontario	0.4%/No change
Quebec	3.0%/0.6%
N.B.	1.8%/0.7%
N.S.	–0.1%/0.8%
P.E.I.	8.4%/2.0%
Nfld.	–1.5%/–0.4%