Help for home buyers & owners in Budget '09

Among many other things, the new federal budget contains a handful of benefits for home buyers and existing home owners. Here are 3 that I think will have a direct impact on the real estate market (credits below):

The withdrawal limit under the Home Buyers’ Plan increases to $25,000 from $20,000 in respect of withdrawals made after January 27, 2009. This is a straight increase. All other conditions remain the same. This will help first time home buyers jump into the market a little sooner. The trade off is that first time homebuyers can put more down to purchase a home against potentially withdrawing money from an RRSP and realizing any losses due to recent underperformance of most marketable investments.

A new First-Time Home Buyers’ Tax Credit is being introduced which is based on an amount of $5,000 for first time home buyers who acquire a qualifying home after January 27, 2009. The non-refundable tax credit is calculated by reference to the lowest personal income tax rate for the year. The credit will also be available for certain acquisitions of a home by or for the benefit of an individual who is eligible for the disability tax credit. This credit will amount to a maximum of $750 towards closing costs for a home purchase. This comes off of any income taxes owing but cannot add to any refund (i.e. if you owe $500 in taxes after completing your return, this can reduce that amount owing to $0 and not result in a refund of $250) Only applicable to first time home buyers.

A new Home Renovation Tax Credit (HRTC) is being introduced. The HRTC is a 15% non-refundable tax credit for eligible expenditures made in respect of eligible dwellings which would generally be considered to be an individual’s principal residence. Eligible expenditures include labour and building materials for a renovation that is of an enduring nature. The HRTC applies to expenditures, in excess of $1,000 but not more than $10,000, made after January 27, 2009 and before February 1, 2010 pursuant to an agreement entered into after January 27, 2009. Renovations (which can be on a condo, second home, cottage etc and applicable to most trades and products) done before Feb 1st of next year is eligible for up to $1350 in tax credits. Has to be done by Feb1st next year ,you have to show receipts for all the work, renovations have to be over $1000 and you earn the tax credits over this amount and up to $10000 (which amounts to a max of $1350 in total). Refi’s for renovations and purchase plus improvements are positively impacted.

(CREDITS: Dianne Chafe (Orianna Financial), Ministry of Finance, The Globe and Mail, Deloitte and Touche, the Hamilton Spectator.)

Of these, I think that the Home Renovation Tax Credit is going to have the most impact, simply because there are more existing home owners than there will be buyers to take advantage of the other 2 items. I used to work in the forest industry as a lumber trader. Although we were sensitive to the overall economy, we knew that a decline in new home construction (which is typical in a recession) was always off-set by an increase in the do-it-yourself (DIY) market. Basically, when people can't afford to move, they renovate! Keep in mind, too, that any home improvements that you do this year for your own benefit ('enjoyment') will add value for when you want to sell in the future, so take advantage of it if you can!

The other two items, combined with the modest tax cuts proposed, will help with over-all affordability, which is more good news. Super-low interest rates and improving home affordability will help the real estate market firm up sooner rather than later. If you are a buyer - first time or move-up - don't sit on the sidelines for much longer, or you'll miss your chance! Call us today to get started!