Nice place to live, not to invest - MoneySense

Nice place to live, not to invest

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Just as Americans are obsessed with guns, Canadians have an equally unhealthy relationship with real estate. And by real estate I mean our crazy expectations of home prices.

Don’t believe me? Just try telling people on your street their homes are worth a lot less than a year ago. All I can say is, don’t expect an invite to the neighborhood barbecue this summer. It seems Canadians believe there’s a clause in the Constitution guaranteeing home prices will always go up…. and up and up.

As a homeowner who thinks house values have dropped (and will likely go down some more), I’m fascinated by the conflicting studies out there on this topic, as reported in the National Post.

One the one side we have the Canadian Real Estate Association. CREA says average home prices shot up 16.7% from January to May, to a record $320,000. In effect, the housing market is back to pre-recession levels. (And we didn’t even have to invoke the notwithstanding clause to do it. How great is that?)

On the other side, Statistics Canada says new-home prices are down 3.2% since last September, while the Teranet-National Bank House Price Index says home values are down 8.9% from last summer. The Organization for Economic Co-operation and Development goes even further. It calculated an 11% drop in the first quarter of 2009.

I’m with the pessimists on this one. In fact, I’d say the CREA numbers are downright loopy. How do you explain an almost 17% hike in real estate prices in the same month that the national unemployment rate reached its highest level in more than a decade? If the CREA numbers are true, we’re stuck in a Bizarro World recession–one where people are afraid of losing their jobs, and have all but stopped buying clothes and cars, yet are confident enough to slap a down payment on a four bedroom, two-bath Colonial.

Feel free to disagree with me, of course. But let me make this suggestion: Unless you plan to sell your home in the next little while, forget about what it’s worth.

Instead, think of your home for what it is: a place to live. The biggest mistake many Canadians made these last few years was to assume that because home prices were going up, they were getting wealthier. So they raided their line of credit to renovate, or go shopping, or just pay the bills. Hopefully we won’t make that mistake again, even if home prices do start to rise.

If you want to feel rich these days, start putting your money in the bank. And stop thinking you can take it out of your home.

 

 

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