SARAH BOESVELD AND JAMIE KOMARNICKI From Globe and Mail June 4, 2008
Baby boomers are bucking the tradition of Canadians paying off their mortgages by their 60th birthdays, instead finding themselves with two mortgages and deeper in debt, a census report on housing finds.
Rather than paying off their mortgages before their senior years, the way their parents did, boomers are struggling to pay for their homes and an increasing number are taking out mortgage No. 2.
One in six households has a mortgage – the highest rate since 1981 when baby boomers entered the housing market, the Statistics Canada report says. The number of Canadians 60 or older who still had mortgages had been declining, but between 2001 and 2006, the opposite occurred.
Analysts point to recent splurges on renovations and big purchases such as cars, boats and furniture to explain the trend. A recent Statscan report says spending on renovations increased 63 per cent in that time period.
The trend of paying for big-ticket items the value of which decreases while the borrowing period stretches on, sets off alarm bells for financial planner Peter Andreana.
“You're mortgage should not last longer than the asset,” said Mr. Andreana of Burlington, Ont.
“If you spend your second mortgage on a car or something with depreciating value, you could really find yourself in a bind.”
Divorced couples seeking new residences may also be boosting the percentage of mortgaged homes, the Statscan report notes.
Also, more Canadians are making the jump from renting to buying a home, taking advantage of low interest rates to shoulder their first mortgage, it says.
A strong labour market coupled with low rates is helping ease first-time buyers into the market, pushing the percentage of mortgaged Canadian households to an all-time high.
Buyers purchasing older homes are likely to look at low-cost ways to pay for renovations, said Bob Dugan, chief economist with the Canadian Housing and Mortgage Corp.
“Mortgage rates are so much lower than other personal lending rates available,” Mr. Dugan said, adding that smaller, second mortgages used to finance renovations actually help increase the home's value in the long run.
He said that there is little concern over the increase in mortgages as long as Canadian banks continue guarding lending criteria. Default rates on monthly mortgage payments have remained low since the early 1990s, he said.
“That suggests these households are in good shape going into the mortgage: There hasn't been an increase in risk.”
The Statscan report comes at a time when homeowners, particularly in Western Canada, are grappling with skyrocketing housing costs.
The scope of the report – between 2001 and 2006 – doesn't capture much of the record-breaking housing prices of the past few years, particularly in the West, Mr. Dugan said.
In the report, Statscan made these observations:
8.5 million Canadian households, or 68.4 per cent, owned their home in 2006.
3.9 million households, or 31.2 per cent, rented their home, a decrease from 33.8 per cent in 2001.
An estimated three million households, or 24.9 per cent, spent 30 per cent or more of their income on shelter in 2006.
Of the households owning their home in 2006, about 4.9 million or 57.9 per cent, had a mortgage.
913,000 households owned a condominium in 2006, up 36.5 per cent from 2001.
Albertans have the biggest share of mortgaged households at 62.1 per cent, while residents of Newfoundland and Labrador had the lowest proportion at 44.8 per cent.
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diane marie from calgary, Canada writes: Boomers are succumbing to the need for status symbols. Whatever happened to their earlier interest in matters social, environmental, and humanitarian? Advertising is very powerful - I regularly sense the sucking power of the words "stainless steel". Apparently, when one's career leaves one numb, one can always become a consumer. It's a moving target, however. I suspect that many older people see what are, from memory of the 1980s, very low interest rates and think, "oh, what the h*ll". Many people in the U.S. thought the same thing until their equity disappeared.
Posted 04/06/08 at 10:30 PM EDT Alert an Editor Link to Comment
Hornsworth Portswiler from adanac, Canada writes: It's a subscription lifestyle, just figure out what you want and let the bank work it out for you. Of course, when something goes wrong the bank isn't going to help you, but that's what parks (and park benches) are for.
Posted 04/06/08 at 10:41 PM EDT Alert an Editor Link to Comment