I’m seeing lots of ‘for sale’ signs in the city lately, but apparently this is common right now. What is some what weird is the huge variation on pricing I’m starting to see on some listings in Regina. For example, there is a similar size house not to far from me listed for $380,000, then another house with about 100 extra sq ft going for $440,000. Trust me when I say I looked at the pictures for both places and they are not that different inside.
So what the hell is going on? I suspect we are hitting another housing fever similar to the spring of 2008 when my house value went through the roof and then crashed back down afterward. If you are curious what that looked like go check out any net worth post with graphs you can see what the bubble of house value did to my net worth. What gets me about this every time housing values get near the $400,000 range is I feel like I moved to an upscale area, but I didn’t leave my house. I keep looking around and thinking ‘you paid WHAT for that?’ Even with adjusting for inflation 2% per year my house should only be worth about $205,000 from what I paid for it.
What’s really interesting to me about this is when I talk to any of the new neighbours they are not much different than us. They make a decant living, but they are not rich. So how are people paying for these over priced houses? Good old fashion debt and lots of it. This is then driving two interesting consequences: one we have a lot of people who are vulnerable to interest rate increases over a five year cycle and second that’s a lot of potential retirement savings being used to pay the mortgage. No wonder retirement savings rates and balances are crap in Canada. We are putting everything we have into our houses.
So is this the classic case of unintended consequences in action? Perhaps the plan to encourage home ownership and boost economic activity, but over the long haul all the government has encouraged is making a mortgage payment instead of making an RRSP contribution. The net result is we aren’t actually increasing the GDP, we are just moving future home ownership from the future to now and getting a short term boost. Over the long run the banks will do well on mortgages but everyone else won’t be doing much other than paying the mortgage.
At the end of the day I’m thankful for buying what I did when I did it. That way I won’t be stuck paying off debt for the next decade or two. I do feel sorry for anyone who is getting in right now since they are losing so much of their future freedom to just a mortgage payment.
In order to keep this from again causing a little bubble in my net worth I’m freezing my house valuation at the Feb. level. If it goes down from there I’ll adjust it, but I won’t be taking it up. I might remove the freeze after things settle down again.
So how’s the housing market in your part of the world? Are they just as over priced as here or have you already seen your peak and are heading down?