Threats of dramatically increased electricity rates, combined with sky-high oil and natural gas prices, have Ontarians reeling. Soon-to-be buyers and sellers may not realize the full impact of this bad news on their real estate dreams.

The pending increase in hydro obviously means more expense for anyone using electricity in Ontario, but its affect on real estate may not stop there. Buying patterns, property values and marketing strategies may change significantly in some areas.

In other provinces and territories, the cost of maintaining and using real estate also continues to climb. The financial reality of adding next winter's high-priced heat to already-pricy operating costs is difficult to worry about as milder weather descends on Canada. Although individual usage patterns determine actual household electricity and fuel expenses, higher electricity and energy rates raise concerns for Canadians that include:

House Rich, Cash Poor:

The real estate, construction and financial sectors encourage buyers to find and borrow as much money as possible to buy into the real estate dream. Buyers, especially first-time purchasers, can find themselves financially stretched by mortgage payments, with little relief for daily and yearly ownership pressures or personal setbacks.

To avoid becoming house rich, but too short on cash to furnish it properly or to have a life, prospective buyers should create a projected household budget with the help of their real estate professional once a purchasing price range is established. Adjustments can be made for particular properties by including actual utility, heating and tax payments to estimate costs relevant to a prospective property. Determining the entire monthly cost of ownership in advance guarantees sound buying decisions.

Hot on Energy-Saving:

Instead of decor upgrades, new home buyers may benefit from investing in insulation upgrades and other energy-saver features, especially if they'll use electrical heating. Designs that respond to ongoing increases in heating costs may shift value perceptions away from extremely high ceilings and open concept layouts toward homes that are less expensive to keep cozy in winter and cool in summer. Higher insulation standards, better quality windows and doors, passive solar design approaches and alternative main or back-up heating/cooling systems such as heat pumps should be investigated before construction begins.

Counteract Cost:

Sellers of electrically-heated homes may find the range of potential buyers tightens as operational affordability becomes an issue. These homes may need special value-added features or attractive financing packages to prevent them from stagnating on the market or losing value. Sellers now intent on 'staging for show and dough' may soon need to consider energy strategies to sell their home.

Value Reflects Heating:

Property values may be affected by operational costs when buyers think twice about older well-made, but poorly insulated homes, so that heating becomes a value factor. Locations where local and provincial governments have solid energy production and homeowner support programs may gain value compared to areas with over-priced energy and poor management track records.

Design for Efficiency:

Buyer patterns will reflect the points made above and will include evaluation of a developer's innovative energy-efficiency approaches in design, construction and location. Buying real estate will focus on the building's efficiency and functionality, not how it's decorated.

Banks and other mortgage lenders may react to the energy crisis in other ways. As interest rates climb, lenders will become increasingly concerned about overall expenses when calculating allowable monthly mortgage expenses. Currently, most borrowers qualify for a mortgage based primarily on:

• a calculated percentage of their gross income

• annual property taxes

• the amortized payment of principal and interest calculated by lenders, and

• on condominium fees, where relevant.

In reaction to rising energy prices, lenders could again include heating costs in their qualification calculations, so that higher heating costs may mean less financing is offered to a buyer. In the future, expenses like electricity or even water may be added to the affordability equation, reducing borrowing power even further. Smaller available mortgages would mean less house or a less desirable area, unless energy-efficient home design gains buyers extra borrowing power. Will the construction support buyers toward that goal?

We are at the start of a new era in Canada, one that may see a move away from today's mega homes and into compact, more efficient, cozy homes. It's no longer "if," but "when" this reality will hit home.

Published: April 18, 2006

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Futurist and Strategist PJ Wade is "The Catalyst" - intent on "Challenging The Best to Become Even Better." PJ earned this title by translating the dynamic impact of Boomers and their multi-generation families into relevant insights that start people thinking and taking action—in business and in life. Author of 8 books and more than 1800 published articles, PJ encourages individuals to become their own futurist. PJ writes and speaks about the insight, knowledge and solid decision-making skills that professionals and their clients need to live and work in this vortex of change. For instance, since PJ knows that home is headquarters for the new decades-long "unretirement," she wrote the popular book "Reverse Mortgages: Best Friend, Worst Enemy...Your Choice!", which is filled with suggestions and cautions on protecting, building and managing home equity. Her new business book, "What's Your Point?: Cut The Crap, Hit The Mark & Stick!" will be published in 2012. As The Catalyst, PJ provides strategic communication, client appreciation and advanced education services to the financial, tourism, lifestyle and service sectors - and the clients they serve. A frequently-quoted financial and business commentator, PJ is a thought-provoking strategic speaker who offers practical, real-life suggestions on leaving "the box" behind and embracing Forward Thinking - a talent she regularly demonstrates in this column. For more on keynotes, blogs, books and information on a range of 21st-Century topics, visit TheCatalyst.com.