Money123: Housing market shows signs of life

Housing market ‘turning a corner’

We got fresh data from the Canadian Real Estate Association this past week — and it’s signalling that the housing market is “starting to turn a corner” despite interest rates remaining at 22-year highs.

Home sales rose 3.7 per cent between December and January, building on the 7.9 per cent month-over-month increase recorded the month prior, CREA said.

“The market has been showing some early signs of life over the last couple of months, probably no surprise given how much pent-up demand is out there,” Larry Cerqua, CREA chair, said.

“There’s a consensus that the market will probably look quite a bit different this year compared to 2022 and 2023.”

Prices, meanwhile, haven’t seen the same broad rebound just yet.

Declines were posted in some markets, mostly in Ontario, and to a lesser extent in British Columbia.

Elsewhere in Canada, prices are mostly holding firm or in some cases continuing to climb.

Read more highlights from the report here.

The cost of EV insurance

Electric vehicle (EV) owners in Canada may start to see their insurance rates rise in the coming years.

That’s according to a report released this week by credit rating agency Morningstar DBRS. It points to insurers in the U.K., Europe and parts of the U.S., where EV uptake is higher than in Canada, and the impacts the EV transition is having on claims costs there.

“The rates (in Canada) haven’t changed significantly when compared to regular internal combustion engine cars. It’s still the same, and the reason is because there’s a low uptake of electric cars in Canada compared to Europe, the U.S. and other jurisdictions,” said the report’s co-author, Victor Adesanya, vice-president of insurance credit ratings at Morningstar DBRS.

“Right now, it’s not an issue, because they have fewer cars on the road but as time goes on … then it could be an issue.”

Ottawa has mandated that by 2035, all new vehicles sold in Canada must be emissions-free. In two years, 20 per cent of all cars sold must be zero-emissions.

And with more EVs on the road, insurance costs could rise.

Read more here about why.

Why you may want to ‘think twice’ about that RRSP contribution

As this year’s RRSP deadline nears, you may be thinking about whether you want to make a last-minute contribution.

But some financial experts urge caution if you’re in a certain income bracket.

Certified financial planner Jason Heath says Canadians who make roughly less than $60,000 in annual earnings ought to “think twice” about putting their money toward an RRSP.

RRSP contributions have the most benefit for Canadians who are high-income earners, Heath tells Global News.

“The tax deduction, in the very long run, if you look to retirement, is generally only beneficial if you’re contributing at a relatively high tax rate and pulling the money out in the future at a relatively low tax rate,” he says.

Money put inside an RRSP grows on a tax-deferred basis, meaning an individual can claim a deduction on their taxable income for a contribution and pay the taxes on that amount when they withdraw it.

Ideally, this would happen after retirement, when income typically falls within a lower tax bracket.

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– THE QUESTION –

“I have questions about what you can use the funds from an FHSA account for. Can you use it to buy a manufactured ADU or build one on someone’s lot? Also, can you qualify for first-time buyers tax credit as well as FHSA credit? You don’t have to use the FHSA credit the tax year you buy the property but how long do you have to use it for a deduction?“

— A Money123 reader 

“There are a lot of nuances in your question, so I’ll start with the basics. Funds that are in an FHSA may be withdrawn tax-free to purchase or build a ‘qualifying home.’

Whether manufactured or stick built on site, the definition of ADU – accessory dwelling unit – specifies that it is added onto a lot that has a larger main home. As such, I doubt it would fall under the description of a qualifying home since the ownership of the main unit would mean the ADU is not a first home.

And now onto the money side of things. Annual contributions to a FHSA are capped at $8,000 each year for five years – a total of $40,000. Once an FHSA is opened, there can be up to two years’ worth of contribution room carried forward. There is no restriction on when funds in an FHSA are available to be withdrawn. Funds in an FHSA must be used for a first-time purchase within 15 years of opening the plan. If not used, they may be transferred into an RRSP.

It’s always best to pull funds from the FHSA as soon as you decide to take the plunge into new home ownership. If you buy the property, you must make the FHSA withdrawal within 30 days of taking possession. In other words, you can’t apply FHSA funds to something you’ve already owned for more than 30 days.

The federal tax credit for a first-time homebuyer is not tied to making an FHSA contribution or to how you fund the purchase. Both the RRSP Home Buyer Plan and FHSA withdrawal may be used for the same transaction.

The FHSA contribution creates a tax deduction (not a tax credit) that can be used in the same year or carried forward for use later – just like RRSP contributions. The carryforward is useful if you think you will have more taxable income in a future year.”

— Lenore Davis, certified financial planner

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