Posted by Tim Stobbs on August 12, 2008
Jordan sent me an interesting link yesterday on the predicted collapse of the Western Canada real estate market. Where the report states BC is overvalued by 35% and SK is over valued by 50%. Then he asked a few questions:
Not being an owner yet myself, that made me wonder what a financially savvy person would
do if they found this out and deemed it to be true?
I recall your net worth gained a lot from the value of your house going up, if
you now stand at the top of possibly large declines would you consider selling
your family home to avoid the downtown? Pocket the appreciation and wait to
re-buy when prices were a deal or is the value of home ownership / stability
First off I do think the report is somewhat true, but a little late. We are already experiencing a downturn in Western real estate markets and there will likely be some more dropping of prices for at least a year or two until supply and demand get balanced out again. I think the 50% over valued number is just plain bullshit in SK personally. Why? Well first off that would wipe out all the gains in the province since the boom started, which seems to me like a little over simplified math. Basically SK cities has historically been grossly undervalued compared to just about every other major city in Canada. I bought a house here which would have easily cost me $300,000+ anywhere else for $190,000. Hell even the provincial government knew that and used to sell the idea of SK’s low cost of living to attract people. Part of the boom up in prices is just bringing us up to par (I would guess about 25%), then other 25% is unstable due to speculation. So we are going to continue to fall, but I don’t think we will drop by 50%.
I won’t sell my home to try and cash in and try to avoid the downturn. My home to me is more than just an investment, it is also my shelter and my wife’s place of business. We choose this home over all the others due to price, location and most importantly the floor plan. It is ideally suited to a our lifestyle (no dining room) and running a daycare (large family room and a main floor bedroom and under 1km to three schools). So finding a replacement as a rental where my wife could continue to run the daycare would be difficult.
Additionally my wife is sick of moving (I believe our total now is 6 moves in the last 8 years). So I’m doing my best to stay put here for at least 10 years total. So with that in mind I don’t dare place a for sale sign on my front lawn until 2016 unless I can come up with a REALLY damn good argument to move us. So in the mean time my net worth will continue to look like a yo-yo until my investments out pace my equity in my house.