The death of house as an investment and the return to house as home?
Sep 2, 2010
September 2, 2010
There was a very sentimental, heart-warming post about real estate in the Globe and Mail today and there are few real estate articles that have these qualities. Naturally, it gave me pause for thought.
The main gist of the article was this: we are returning to treating a house like a home, not like another investment.
Maybe as you get older, your perspective about these things changes. But I think there’s something to be said for the days when you didn’t buy a house to get rich and finance your retirement. You bought it to shelter your family and build a lifetime of memories. And it was often the only home you ever owned. When it came time for the kids to fly the nest, it wasn’t unreasonable to expect they’d own a home, too. Now I feel so sorry for young people trying to get into the market.
For years, there has been a general consensus that real estate has nowhere to go but up. Hence, you should buy a house ASAP, even if it means drastically cutting down on day-to-day expenses.
Between 1960 to 2000, house prices in Canada (and in the U.S., for the most part) appreciated at roughly 2.4 per cent a year when adjusted for inflation, according to Scotiabank…Things changed from 2000 to 2009, when house prices in Canada increase an average of 5.2 per cent annually.
That’s a pretty sweet deal really. You have a place to live instead of paying rent, and you get a 5.2% annual return. No wonder people flocked to become homeowners!
The general sentiment now seems to be that real estate will not sustain such high returns. That doesn’t mean a massive revaluation, but it does mean more modest price gains (perhaps at or slightly below the 2.4% level prior to 2000).
And it’s not all bad. After all, these more modest price gains will ensure that young people will not be entirely priced out of the market in the future.
So don’t rely on your house for retirement income, because that might be a thing of the past. Make sure you can comfortably make your monthly mortgage payments, even if rates were to go up on your variable rate mortgage. Things will stabilize once again, and the whole country will have to catch its bearings and see where we’re at. Until then, my advice is to be optimistically cautious.