Edmonton Real Estate Blog

Well I hope you all had a Happy Holiday!! Now it is time to start thinking about what might happen in the New Year. Current data that I use to forecast the market are skewed right now because of the holiday season so we will wait until we have new data next month to see where the market is going.

It seems the consensus that home values will go up in the New Year, but I don’t think that it will be as much as most people think.

Yes, there are parts of Canada that the market is really getting hot again – but that is only because their home values had dropped more than we had, and their economies were more depressed than what we had experienced here in Edmonton, and Alberta for that matter.

The recovery in the USA isn’t going as well as most people had hoped, and that will slow down any recovery we have here in Canada as they are our biggest trading partner.

I think we will more likely to see a 5% increase in home values as that would be more realistic. We might be able to get lucky and get up to 10%.

But this all could be brought to a halt or slow down as the finance minister is worried that Canadian people have taken on more debt than they ever have in the past. He is thinking about possibly making changes that will affect mortgages and real estate.

Some of the changes they are considering are raising the amount of down payment up from the current 5% to at least 10%. They are also talking about shortening the amortization period from the current 35 years. Another expectation is that the interest rates will be going up this year.

These factors will have a great impact on the ability for people to buy homes, especially for first time buyers. They will now have to wait longer to save for a down payment and they will now qualify for less of a home because of the lower amortization period.

The real estate cycle starts with the first time buyer. They need to get into the market so that everyone else can sell their home and move up into a bigger or more expensive home.

In my opinion if any of these changes are implemented you can expect the real estate market to slow down and curb the chances of valuations to go up.

So if you are a first time buyer I would advise you to do everything in your power to buy sooner than later. We might be able to help you with this process including helping you to get pre-approved with the lowest rates possible ( in many cases lower than the banks), and we can send you a first time buyer package.

To receive the package call Kate at my office at 780-643-8151 or send her an e-mail @ teamleadingedge@shaw.ca

Lets see what this month will give us and hopefully we will have a better indication as to what we can expect in this springs marketplace, and that is my two cents… Serge

Edmonton, January 5, 2010: Residential sales through the Edmonton Multiple Listing Service® were at the second highest level ever for December (after a record number of sales in 2006 of 1,074). Sales of single family homes, condominiums, duplexes and other residential property totalled 948 units for the month. Total sales of all types of real estate for December was 1,066, also a second place finish for monthly sales.

The price of residential property remained stable in December with single family homes dropping just  one third of a percent and condos increasing 5.4% to reverse the 2.5% drop in November. An average* priced single family property in the Edmonton area sold for $366,761 in December; down from $368,018 in November. The average price for a condo was $244,174; up from $231,684 the previous month. The all-residential average price at the end of December was $319,201.

“Strong year-end sales put a crown on a year that started slow but ended big,” said Charlie Ponde, president of the REALTORS® Association of Edmonton. “We entered 2009 with a global recession at our backs and a real estate meltdown to the south. However consumer confidence in Alberta started to return in the second quarter and the real estate market in Edmonton was the first place in the country to show signs of the recovery.”

There were 19,139 residential sales in 2009 with record setting sales in June and July after the slowest start since 1996. From September to December residential sales were just below record sales set in 2006.

Throughout the year the average single family sale prices varied from a low of $347,000 in February to $373,000 in July; a $26,000 or 7.5% spread. The average year-to-date value was $364,032. Condo prices varied within a 9% range from $227,000 in February to $247,000 in June. The average year-to-date price was $240,322.

There were 1,118 homes listed in December resulting in a sales-to-listing ratio of 85%. The average days-on-market was 50 days and total residential sales were valued at $302 million for the month. Overall, the MLS® System had total sales of all types of property of just under $7 billion in 2009 as compared to $6.6 billion in 2008.

“We predicted residential sales of 15,550 this year and exceeded it in early October,” said Ponde. “We anticipated that single family prices would end the year at $352,000 and condos would be at $222,500. We are pleased that the year ended up better than we had anticipated and look forward to the stable market continuing into the next decade.”

Source: REALTORS® Association of Edmonton

Interest rates are about to start rocketing higher. Savers, get ready

You now have roughly six to nine months to get a personal plan together for dealing with higher interest rates.

After that, the ride begins. Where it ends depends on how smartly the economy and inflation snap back, but we could be looking at a prime rate of more than double the current 2.25 per cent by the end of 2011. Let’s look at four ways you can prepare:

1. Home buyers, lock down your mortgages

If you absolutely must buy a house in the overheated market in some big cities, then consider insulating yourself against rising rates by taking a five-year fixed-rate mortgage. A quick scan of mortgage brokerage websites shows five-year terms priced in the range of 3.69 to 3.99 per cent, while the big banks are advertising specials as low as 4.19 per cent.

Forget the research that shows you’ll save on interest over the long term if you go with a variable-rate mortgage. If you’re stretching for family cash flow to buy a house, then cost certainty is more important than potential savings.

Anyway, today’s five-year rates are quite good by historical standards. Bank of Canada data show the average five-year rate over the past decade was 6.8 per cent, which compares with a typical posted rate today of 5.5 per cent at many banks (this rate is bogus – always ask about the kind of discounted rates mentioned just above).

Note that seven- and 10-year mortgages are available today for rates as low as 5.2 to 5.3 per cent. I’ll have to investigate further, but this sounds reasonable from a historical point of view.

2. Homeowners, face the music

If your mortgage comes up for renewal in the next few years, brace yourself for higher rates and, thus, potentially higher mortgage payments. Suggestion: ask your lender for your projected mortgage balance at maturity and then use an online mortgage calculator to figure out how much your payments would be at various interest rate levels. Try: canequity.com/mortgage-calculator.

One suggestion for accommodating higher mortgage payments is to reduce your overall monthly debt carrying costs by paying down your line of credit.

Emergency measure: lengthen the amortization period on your mortgage on renewal. This is costly in terms of extra interest, but it will take the pressure off in terms of your payments.

Longer amortization periods are only a remedy for people who went with the standard 25-year payback period when they arranged their mortgages. People who started with a 30- or 35-year amortization have already played that card.

3. Enough with the bond funds already

As of the end of November, bond funds had the highest year-to-date 2009 sales for all broad fund categories at $11.3-billion. Bond funds were an ideal refuge during the worst of the bear market, but now they’re vulnerable to rising rates.

Already, a rising rate outlook is hurting bonds. In December, the biggest bond mutual and exchange-traded funds in the country were down anywhere from 1 per cent to 1.6 per cent. If interest rates move up modestly and gradually, then gains in bond funds will be hard to come by. If rates spike higher, bond funds will be money losers.

Investors buying bond funds for safety might consider guaranteed investment certificates as an alternative, particularly those from smaller banks and credit unions (all should be members of deposit insurance plans). Returns at the high end are typically in the range of 1 to 2 per cent at best for a one-year term, but rising rates will help on this front.

Balanced funds are hot these days, too. Remember that the whole point of these funds is to mix bonds and stocks together. You could argue that this approach just adds to your risk right now.

4. Savers, get ready

The benefit of rising interest rates is better returns for savers and conservative investors who rely heavily on GICs and high-interest savings accounts. High-interest accounts today pay no better than 1 to 2 per cent and, frequently, even less. These accounts will automatically start paying more once rates start rising. Among the beneficiaries will be all the people who have used high-interest products for their tax-free savings accounts.

With GICs, you’ll want to have money maturing later this year and 2011 to capitalize on higher rates. As ever, the best strategy for the most people is to invest equal amounts in GICs with maturities of one through five years. This laddering approach means you have money available for reinvestment every year, which means you’re good for the next few years of rising rates.

Follow me on Facebook. I’m at Rob Carrick – Personal Finance.

***

Higher, but by how much?

Here are some recent forecasts of how high interest rates will rise this year and in 2011. The rate used here is the Bank of Canada’s overnight rate. Banks are currently setting their prime lending rate two percentage points above the overnight rate, which is currently 0.25 per cent.

If you didn’t buy a house in July, the best time to buy may be running out, according to a new consumer-confidence survey.

The November Alberta consumer confidence index, released Saturday along with its sisteconomyer survey measuring business optimism by Leger Marketing and PricewaterhouseCoopers, show both groups expect continued economic recovery.

But while jobs will be more plentiful, consumers increasingly believe real estate will become more expensive in the near future.

The index of Albertans who believe buying a house in the near future is the best time to do so decreased to 147 in November, continuing its fall from a July peak of 164.

Survey questions in the study were used to produce index scores representing respondents’ confidence in a component of the economy. An index score above 100 represents an optimistic sentiment, and scores below 100 indicate pessimism.

“With signs of economic revival and potentially a real estate recovery, consumers may become less enthusiastic about purchasing a house in the future,” said David Bryan, an advisory partner at PriceWaterhouseCooper’s Edmonton office.

The overall consumer confidence index was 111, down slightly from 112 in September.

Consumers also continue to expect interest rates to rise as reflected by an index score of 63, steady from 65 in September.

Consumers’ optimism about the job market continues to increase. The future unemployment index improved for the fifth consecutive month to 106 in November, the report said. Confidence about employment crossed the 100 mark for the first time since May 2008.

“Overall, consumers are optimistic about the job market,” Bryan said. “Consumers continue to see these times as a good opportunity to buy homes and other major purchases, although to a lesser extent than in the previous quarter.”

But consumers remain conservative about major household purchases, with a November index score of 121, compared with 125 in September.

Meanwhile, businesses continue to become more optimistic about the economy: their overall confidence index rose for the fourth straight month to 109 in November.

In Alberta, 297 business leaders were surveyed in November, and 900 consumers were interviewed by phone. The margin of error is plus or minus 3.3 per cent, 19 times out of 20.

By Bill Mah, Edmonton Journal

The Canadian housing market is getting dangerously close to “bubble territory” and is likely headed for a correction in the second half of 2010, according to a top economist.

“We are certainly at risk of a full-blown bubble,” said BMO Nesbitt Burns deputy chief economist Doug Porter, who expects to see a “modest” market correction next year with prices taking a hit.

The extent of the correction depends on how much prices increase in the next six months, he said. After dropping at the start of the year, resale house prices have surpassed the peaks of the past year. Research by the bank to be released Wednesday says housing valuations are likely “richer than equity valuations” in the current market.

“The higher we climb, the bigger the risk of a correction,” Porter said.

He said characteristics of a bubble economy include speculative buying, a massive amount of credit on the market, and sales and prices of homes “going north without the economy tagging along.”

Cities such as Vancouver and Toronto, which have had significant activity, stand the most risk of a correction, he said. “You are seeing a lot of line ups at sales centres and speculative buying in those cities.”

Existing home sales rose for the third straight month in November, up 73 per cent from 2008, according to figures released Tuesday.

A total of 36,383 homes sold in November, according to the Canadian Real Estate Association. That figure is just under a percentage point short of equalling the November record for home sales set at the peak of 2007. The average price of a home was up 20 per cent year over year to $368,665.

In Toronto, sales hit 7,466, about double the total from last November, when the financial crisis set in.

The volatility means homebuyers continue to be nervous about the economy, according to a poll released Tuesday by Royal LePage of their 1,225 agents across Canada.

“This kind of unsustainable volatile market really creates uncertainty in people’s minds,” said Phil Soper, president and CEO of Royal LePage.

According to the poll, 38 per cent of Royal LePage agents say economic factors such as job security are the number one issue with buyers. Another 23 per cent said their clients fear they wouldn’t be able to get the price they wanted for their home, and 12 per cent said some customers are hesitant to sell because the market had not hit bottom. About 20 per cent said they had no concerns from clients.

Soper says that unlike the U.S., rapid price rises have been “a matter of weeks” during the second half of the year, compared with south of the border, where the bubble developed over more than four years.

“The market has a way of sorting through things and we hope it’s in a measured way. As affordability erodes one thing you will see is that more people won’t qualify for lending and activity will ease off,” said Soper.

Some good news for buyers is that the return of strong demand means that more sellers are returning to the market. Seasonally adjusted new listings rose 5 per cent on a month over month basis in November, the biggest monthly increase since January of last year.

Tony Wong
BUSINESS REPORTER

EDMONTON – More houses and condos will be built, more existing homes sold and it will be a little harder to find an apartment to rent next year.

And existing homes and rents are expected to cost more in 2010, a comprehensive new report on Edmonton’s housing market said Monday.

This strong rebound predicted for 2010 comes after housing starts in the Edmonton area hit bottom this year — the third straight year of decline, the Canada Mortgage and Housing Corp. said Monday.

Builders are on pace to begin construction on 5,000 homes, 24 per cent fewer than the year before, said the national housing agency’s Fall 2009 Housing Market Outlook for the Edmonton census metropolitan area.

It is the lowest level of activity for the region’s homebuilders since 1997, said the report, and follows a 56-per-cent decline in total housing starts in 2008.

“While single-detached construction has staged a modest recovery since the summer, a continued downturn in the multi-family sector will hold down this year’s numbers,” the report said.

For 2010, the agency expects continued growth in single-family detached homes and a moderate rebound in multiples, boosting total starts by 29 per cent to 6,450 units. While that would be a considerable improvement over this year, it compares with an average of more than 10,600 units started every year from 1999 to 2008.

For 2009, a new single-detached home in Edmonton will be an average of $535,000, up 4.5 per cent over 2008.

Still, the CMHC predicts the average price will soften in 2010 by 2.8 per cent to$520,000 because of a “lagged effect” of when homes are priced and when they are completed.

On the other hand, the agency forecasts pressure for higher negotiated selling prices in 2010 from builders who had cut their margins over the past year to clear inventory. “With better economic times ahead, land and labour costs as well as material prices such as lumber and concrete are expected to increase.”

In the resale market, the CMHC predicts residential Multiple Listing Service sales will increase this year by eight per cent to 18,750 units. Last year was the slowest for Realtors since 2003, with saw sales falling 15 per cent to 17,369 homes.

“Provided the economy and interest rates perform as expected, CMHC looks for the upward trend to remain in place during 2010,” the agency said. Total MLS sales are forecast to rise another 9.3 per cent to 20,500 homes in 2010, which would approach the level in 2007, which was the second-best year on record.

The average residential MLS price will end 2009 close to $322,000, down 3.3 per cent from the 2008 average.

A balanced market in 2010 is expected to translate into modest price gains all year, with the average resale price rising 3.4 per cent to about $333,000, CMHC said.

Home-ownership costs will likely rise in 2010 as mortgage rates are at rock bottom and prices set to increase, the agency added.

In rentals, apartment vacancy rates across Greater Edmonton will continue to trend up this year. “But landlords should see a turnaround in 2010, provided economic conditions improve,” the report said.

The vacancy rate for October was an estimated four per cent, compared to 2.4 per cent a year earlier. It was the highest fall vacancy rate since 2005.

Factors in dampening demand for rental apartments were rising unemployment, more demand for home ownership and a steady influx of condominium units.

The agency sees the rental vacancy rate falling to 3.5 per cent amid fewer new apartments and strengthening demand.

CMHC expects its fall survey to show rents largely unchanged from October 2008. “With vacancy rates starting to subside in 2010, property owners will be looking to raise rents to offset rising operating costs, in particular utilities and property taxes,” the report said.

A typical two-bedroom apartment will rent for nearly $1,070 by October 2010, up about $35 a month on average compared with October 2009.

By Bill Mah, edmontonjournal.com

OTTAWA – Canadian home sales jumped 73 per cent in November from a year earlier as the real estate market continued to recover from the economic downturn.

The Canadian Real Estate Association said Tuesday that 36,383 residential properties were sold last month, with Ontario and Quebec setting sales records for November.

“The current strength of housing demand stands in sharp contrast to weak activity recorded one year ago,” CREA said in its report, adding that activity was just 4/10 of a per cent below the highest level for the month recorded in November 2007.

“National home sales activity last month shows how strongly the housing market has rebounded since the beginning of the year,” said CREA president Dale Ripplinger. “As we predicted last April, the rebound in resale housing activity led the overall Canadian economy out of recession.”

The national residential average price was $337,231 in November, up 19 per cent from a year earlier.

Financial Post

 People walk past new homes that are for sale in Oakville, Ont. New house prices went up for the fourth straight month in October but are still down from last year, Statistics Canada said Friday.

New house prices higher in October

Statistics Canada says housing prices were on the rise in October.

The agency’s New Housing Price Index rose 0.3 per cent in October, its fourth straight monthly increase. The index rose by 0.5 per cent in September.

Prices increased the most in Quebec City, where they were up 1.1 per cent, followed by Vancouver, at 0.7 per cent. Hamilton, Sudbury and Thunder Bay, Ont., all registered 0.5 per cent increases.

Prices went up in Quebec City in part due to a scarcity of land and increased building costs, the agency noted.

Two cities recorded monthly decreases in new housing prices – Charlottetown, with a 0.7 per cent drop, and Edmonton, at 0.3. In both cities, prices were lower because builders slashed prices to remain competitive, the agency said.

Year over year, the index was down 2.1 per cent in October following a 2.7 per cent decline in September. The largest decreases continue to be in the west, Statistics Canada said.

CBC News

Record-low borrowing costs combined with the growing realization that the economic storm is passing have fuelled the remarkable recovery of the real estate market in Canada. However, it is important to understand some of the issues that have surfaced with these exceptionally low interest rates.

If you are obtaining a mortgage, you are fortunate to be obtaining some truly historically low interest rates. The decision between taking a variable rate mortgage versus a fixed rate mortgage should be evaluated with your mortgage consultant and/or your realtor to assess the pros and cons of each option. Although rates are exceptionally low, lenders are definitely exercising more caution with their lending policies.

If you are thinking of refinancing your current mortgage, you need to consider the cost of breaking your existing mortgage compared to how much you will save in interest payments.

If you break an existing mortgage you will have to pay the greater of three month’s interest or the interest rate differential (IRD). An IRD is a penalty for early prepayment of all or part of a mortgage outside of its normal prepayment terms. Usually this is calculated as the difference between the existing rate and the rate for the term remaining, multiplied by the principal outstanding and the balance of the term.

If for example a borrower is currently paying 6.0% interest on their home mortgage and the current rate is 3.5% the difference (6.0% – 3.5%) is 2.5%. This 2.5% will be charged for the months remaining on your mortgage. If you are carrying a $400,000 mortgage at 6.0% your monthly payment is approximately $2,559. If the current rates are 3.5% the payments would be $1,997, the difference being $562.00/month. If you have 48 months remaining on your mortgage, the penalty would be $26,976 ($562 x 48).

These numbers are astonishing and the lenders unfortunately are not easing up on these charges. It may only make sense to refinance your mortgage if the interest rate savings over the remaining life of your mortgage exceed the value of the IRD.

If you are selling your home make sure to know what your mortgage discharge penalty will be for breaking your mortgage prematurely (assuming you are not porting your mortgage).

Of course, if you port (transfer) your mortgage to another property, you will only be penalized on the portion of the mortgage you discharged. For example, if you had a $400,000 mortgage and were carrying a $300,000 mortgage over to your new home, the penalty would only be assessed on the $100,000 mortgage you discharged.

Although the market is changing and will continue to do so, this represents opportunities for buyers and sellers alike. It is extremely important to be informed as a consumer so that you can make good, sound educated choices during these most interesting of times. And please make sure you know in advance what all your closing/transactional costs will be before you enter into any agreement of purchase or sale.

 Canada Realty News

Having kids? Here are 10 money tips to guide you.

It can be expensive to have a kid, especially saving for their education. Here are some tips to help.

After entering the work force and getting married, the next stage to start in life for many people is parenthood. Get the wallets out for this one. Parents have to dole out cash to insure yourselves against mortality risk, to start a college fund for the children, and to buy a family home.

These imperatives call for smart investment decisions – choosing where to allocate your funds to maximize returns for a given level of risk.

Here are 10 tips to help out with the decisions. They might not turn a parent into a Warren Buffett but could nonetheless leave their kids saying: “Thanks, Mom and Dad!”

1. To insure or self-insure?

“One of the first things I did when I found out my wife Edna was pregnant with my eldest daughter was to rush out and get some life insurance,” notes York University professor Moshe Milevsky. As he discusses in his book, Wealth Logic: Wisdom for Improving your Personal Finances , his own father had died early without life insurance while several of his children were still dependent on his income.

Mr. Milevsky and his siblings were nevertheless spared destitution because their father had accumulated a sizable estate through frugal living and investing in a diversified portfolio of financial assets. “In the insurance lingo, my father had decided to self-insure,” Mr. Milevsky reports.

Self insuring can be riskier than buying life insurance right off the bat. If the father had died earlier, his estate might not have been sufficient. However, someone who had aggressively saved prior to marriage (see Part 2 of the Investing for Life series: Getting married? Ten money tips ) would have minimized this early-stage risk (with a will in place). An aggressive saving and diversified investing plan early in a marriage might be another option for couples with frugal tendencies and an aversion to insurance premiums.

2. Best place for an education fund

One of the best places for a child’s education fund is inside a registered education savings plan (RESP). The government throws in grants of up to $7,200 through the Canada Education Savings Grant (CESG) plus additional grants for low-income families. Funds compound tax free and are taxed at the child’s lower marginal rate when they are withdrawn for post-secondary education.

It helps to become familiar with how the plans work. For example, some have higher administration fees than others. And not all providers transfer the low-income grants into the plan – so if your family is of modest means, “first ask the provider if they offer the extra grants before you sign up,” warns Mike of the Four Pillars blog.

In short, it is a good idea to know the nooks and crannies of RESPs. Sources include the RESP section on the Four Pillars blog, online discussion forums, CanLearn, and Human Resources and Skills Development Canada. And get an early start on opening an RESP to give time for the compounding of returns to work.

3. What will the kids think?

Some parents believe in a conservative approach when investing for their children’s sojourn in the halls of higher learning. Lower returns are acceptable to them as a trade-off for minimizing the risk of losses – something their kids might not look kindly upon.

“I look at it like I am the trustee of the funds and have a responsibility to be prudent with the investment choices,” explains Jim Yih, a fee-only financial adviser with financial firm Retirement Think Box in Edmonton. He has put half of the RESP funds for his four young kids into a balanced mutual fund and the other half into fixed-income instruments.

In the end, whether a parent goes with a high or low allocation to volatile investments such as equities is a matter for risk tolerances. Those who go with higher allocations will likely wind up ahead of the game given the superior long-run returns of stocks – see Jeremy Siegel’s Stocks for the Long Run – but the price of admission is a greater risk of ending up with sub-par returns.

4. Become a couch potato

A popular choice within the Canadian personal-finance blogosphere for investing RESP funds appears to be the Couch Potato Portfolio. It spreads money over a diversified basket of low-cost index funds. According to MoneySense magazine, the “classic” version has generated average annual returns greater than 10 per cent over the past three decades.

One of the more popular instruments for implementing the Couch Potato portfolio in an RESP is the TD e-Series Funds, a family of index mutual funds only available online – but at the lowest of annual fees for mutual funds. The Pre-Authorized Purchase Plan (PAPP) allows investors to automatically invest small amounts at regular intervals, without commissions.

The Couch Potato Portfolio from the author of the Million Dollar Journey blog is diversified across Canadian equity (30 per cent), U.S. equity (30 per cent), international equity (30 per cent), and Canadian bonds (10 per cent). It’s rebalanced annually. At the 10-year mark, the asset mix will begin a transition to a more conservative stance, which by the 18th year it will consist of guaranteed investment certificates (75 per cent) and money-market funds (25 per cent).

5. Automate asset shifts

Shifts in the asset mix of an educational fund from the aggressive to conservative, as described in the above tip, seek to maximize returns while controlling for the volatility of equities as your children’s university or college enrolment dates approach. Target-date funds automate this shift in asset mix. An example is the RBC Target 2025 Education Fund.

They offer the convenience of one-stop shopping to investors who don’t have the time or inclination to do their own research. In return, there are some trade-offs. One is higher fees. Another is that the fund’s asset mix may not be suitable for a family.

6. Fine tune the asset allocation

Mr. Milevsky urges investors to think of their total wealth as including their human capital (discounted value of salary, wages, and other income earned over one’s working life). “While conceptually this asset is different from your tangible, financial assets, it should be considered and diversified in tandem with your financial capital,” writes Mr. Milevsky in his book, Are You a Stock or a Bond?

Thus, the rule of thumb is to have an allocation to stocks equal to “100 minus your age” can be fine tuned. Couples with secure jobs, like tenured professors, could allot more to equities than what the rule suggests for their age group. Couples with variable commission income, such as stockbrokers, should go with lower equity allocations.

Another consideration is that the age-related rule of thumb is usually applied more to investing for retirement, where the investing horizon is 25 to 40 years. For children’s educational funds, the horizon usually runs from 10 to 15 years, which is less time for the superior returns on stocks to take shape. Lower equity allocations may perhaps be more prudent within this time frame.

7. Put those child benefits to work

Many parents funnel the Canada Child Tax Benefit (CCTB) and Universal Child Care Benefit (UCCB) into RESPs to get the government grants. However, if a family has a good income and savings rate, they could consider maxing out the RESP with their own funds and investing the CCTB/UCCB outside of the RESP.

That’s because income earned from investing the CCTB/UCCB in a separate account for a child is not attributed to the parents but to the child. The returns will compound virtually free of tax.

Charlene Walker of Nepean, Ont. directed monthly family allowance cheques after her daughter’s birth into a separate bank account and then into shares of Bell Canada through its Dividend Reinvestment Plan (DRIPs allow investors to automatically reinvest dividends and buy new shares at no cost). A few years later, Ms. Walker diversified into DRIPs at six companies. By 2008, her daughter’s nest egg was worth nearly $85,000.

8. Other ways to launch the kids

There are a number of ways to invest in children’s futures beside RESPs, as certified financial planner Alexandra Macqueen discusses in the February, 2009, edition of the Canadian MoneySaver magazine. The benefits of these alternatives include no limit on contributions and flexibility in the use of funds (which can be used to supplement RESPs or finance other ambitions such as starting a business).

One of the more popular seems to be informal in-trust accounts, which are easier to set up than formal trusts. Interest income is attributed to the contributing parent but capital gains are taxed in the child’s hands. Consequently, growth investments would appear to be more appropriate for this channel.

Paying down mortgage and other debt is desirable in itself but it can also be a strategy for helping one’s children get through college. That’s because extinguishing debt frees up cash flow that can be directed as required during the post-secondary years. Other methods include juvenile life insurance (savings component grows tax free and can be withdrawn), tax-free savings accounts (TFSAs) and the indoctrination of your offspring on the importance of saving allowances and working at part-time or summer jobs.

9. Let’s give them a really good start

Some families have more options for assisting their children. “Our kids have RESPs but we haven’t been diligent about maxing them out. We have also purchased income property for our kids’ futures,” says Dana from Ajax, Ont.

She expects the multi-residential properties will be paid off by the time each child is finishing high school. “They can use the income from the property to cover their expenses, or sell the property and use the proceeds to fund their endeavours, or live in one unit and use the cash flow from the others.”

“Not everybody pursues traditional post-secondary education and we want our kids to have an option should they decide to go into business for themselves, work or learn abroad, or pursue graduate programs that their RESPs and other savings wouldn’t have covered.”

10. Buy the house right

Ask people what their best or worse financial moves were and some aspect of buying a house is a frequent response.

“My best move would be never spending too much on a home,” says Tim Stobbs, author of the Canadian Dream: Free at 45 blog.

“We saved in our RRSPs for years and then bought a modest house [which was later sold]. On the next house, we made sure to keep the mortgage to around $150,000. We will likely be mortgage-free by the end of current term, which would mean we only had a mortgage for less than 10 years.”

Margot Bai, author of a personal-finance book, Spend Smarter, Save Bigger , says both her best and worse financial moves were directly related to buying a house.

“When I bought my first home, I locked in my mortgage for five years, a mistake that ultimately cost me about $10,000. By paying a penalty to break my mortgage contract, I was able to recover the penalty and gain another $5,000 over the next two years. Now I stick with open variable mortgages.”

This article is the fourth in a series on personal finance and investing at different stages of your life. As some issues may overlap the different stages of life, they could be covered in a prior or subsequent article.

By Larry MacDonald