The latest data out of Canada's housing markets suggests a sustained downward trend. With the potential for bubbles to burst from coast to coast, do Canadians see their homes as an investment or a place to live? And how is the downturn affecting buying decisions?
By the numbers
Sales of Toronto homes fell 21 percent this fall compared to a year ago, according to the Toronto Real Estate Board. In Vancouver, meanwhile, home sales dropped nearly 33 percent in September compared with a year ago.
Despite those disheartening figures, Canadians still have good reason to be optimistic about what so many call the biggest investment of their lives.
"I believe Vancouverites, at least, definitely view their homes as an investment, not just a place to call their own. It's hard not to with the rise in real-estate values in the Lower Mainland over the past 20 years," says mortgage broker Karen Gibbard, principal at Gibbard Hoffart Financial Group.
Gibbard attended governor of the Bank of Canada Mark Carney's speech to the Vancouver Board of Trade in 2011 and quotes him as saying: "In recent years, housing has proved a very good investment indeed. The value of residential real estate holdings in Canada has climbed more than 250 per cent in the past 20 years."
Whisperings about a downward trend in the housing market have made some first-time buyers more cautious about buying at this moment.
"A very common question I'm asked is, 'Is now a good time to buy?'" Gibbard says. "My answer is always that if you're buying for your own home -- for shelter--then yes, buy. The interest rates are at near historical lows and if you're buying for your own shelter, with a long-term strategy in mind, I personally believe it's a good strategy.
"Why wait a year to buy in hopes that the values have dropped when in the meantime, you've wasted 12 months' rent, and if interest rates have increased, you've negated your potential savings by waiting to buy and paying a higher interest rate for the next five to 10 years?"
"If a homeowner was thinking of selling to either upgrade or downsize, they tend to remain in the same home and renovate to make it fit their changing needs rather than sell at a less than profitable price in a downturn," says Burnaby certified financial planner Satpal Rai.
"The general public and my clients for that matter do not purchase a primary residence only to sell it within five to 10 years," she adds. "They generally purchase a starter home to get into the market and then upgrade when necessary or feasible. Generally clients are living in their principle residences for at least a decade if not 15 years."
"When clients come to see me about their first purchase, it's mostly always a stepping stone to get them onto the property ladder," Gibbard says. "With today's high [property] values, it makes it difficult to buy your dream home on the first go. You need to take a stepping-stone approach and reach for the stars as you build up equity."
And although the stepping-stone approach may be mandatory, it can also be costly, Gibbard cautions. Think legal fees, property-transfer taxes, realtors' commissions, moving expenses, setting up utilities, plus a potential penalty for repaying a mortgage early… It all adds up.
The fallout of flipping
Sure, those who have the means (and the guts) to buy a home, fix it up, and put it back on the market within a year or two stand to make a windfall of cash—if everything happens to fall into place.
"This would not be feasible for everyone with their principle residence," Rai says. "The disadvantages entail moving frequently and constantly working even after your 'regular' job is done so you can finish renovations to put the home back on the market. In a downward market, you would need to be able to maintain the home and its finances to wait out the downturn."