Home Ownership Budget Measures Will Help, But Not Reignite, Real Estate Sector
The recently announced federal budget gives some relief to homeowners, but it is not expected to change the current condition of the real estate market in Kamloops, provincially or nationally. The number of listings on the market not only in Kamloops but nationally are up and the number of home sales are down. It would take a number of factors to change before this ratio adjusts.
The federal budget offered the following: first time home buyer’s RRSP allowance was increased and tax credit was increased. There are also tax write-offs for home renovations.
In an uncertain market these allowances and tax cuts most likely won’t change the rate at which real estate is selling in B.C. but it will encourage current home owners who are on the fence about renovating their home to take the tax write-off as it will not be available forever. The positive aspect of the new home renovation tax write-off is it will keep people working. Some trades people in Kamloops have felt a slow down in their business. This stimulus should encourage home owners to consider hiring a professional to help with renovations.
Below I have included an article from the Vancouver Sun.
Potential home buyers won some small gains out of the federal budget that won’t necessarily re-spark activity in the declining residential real-estate sector, but do go along with the theme of offering incentives for consumers to spend.
In Tuesday’s budget, Finance Minister Jim Flaherty raised the limit for how much first-time home buyers can withdraw from RRSPs to make a down payment to $25,000 from $20,000 for individuals and $50,000 from $40,000 for couples.
Also for first-time purchasers, Flaherty included a 15-per-cent tax credit on home-purchase closing costs to a maximum of $5,000, which would be worth $750 off a buyer’s federal tax bill.
“Perhaps none of these things in and of themselves will be the turning point, or whatever,” Jim Murphy, CEO of the Canadian Association of Accredited Mortgage Professionals, said in an interview. “But they all help, and really it’s the issue of government trying to deal with the whole issue of consumer confidence.”
Murphy said the RRSP home buyer program, first initiated in 1992, has been a very popular program, and that more buyers “than you might think” take advantage of it.
The program allows buyers to withdraw money from their retirement investments tax free for use as part of their down payment so long as they pay it back into their RRSP accounts within 15 years.
The federal government has estimated increasing the limit will cost $15 million a year over the next two years.
The tax credit on closing costs is expected to be more expensive, costing the federal treasury $30 million in fiscal 2008-09, $175 million in 2009-10 and $180 million in 2010-11.
Increasing the limit on RRSP withdrawals to keep step with rising home prices is something the mortgage industry and realtors have been advocating for a long time, Murphy said, and he expects there will be buyers who do use the extra money.
And while the $10,000 increase in the limit for a couple might not be a huge increase, Murphy said it can help reduce the principal of mortgages buyers take out, or help push them over the threshold for not requiring mortgage insurance on their transaction.
“Every little bit helps,” Murphy said.
Dave Watt, president of the Real Estate Board of Greater Vancouver, added that home sales have considerable spin-offs in terms of the furniture new homeowners tend to buy and home improvements they tend to make.
And the whole thrust of Flaherty’s budget was to encourage average people to spend, says Lincoln Schreiner, a Vancouver-based tax-practice partner in the firm PricewaterhouseCoopers.
“When you go into a situation where people start to talk socially about whether their job is going to be there or not, you’re going to be more cautious,” Schreiner said. “People start cutting back on spending, and it becomes like a tidal wave.”