Over the last couple of years, Bridget and I have been keeping our eye open on houses. We bought our current house about a dozen years ago, looking to move out of the city. Unfortunately, with time and intense development, the City has started to come our way. With Bridget retiring from teaching in a year or two, we thought it would be time to start casually looking for something out in the country with more acreage.
It has been an interesting journey – here in southern Ontario, the housing boom went like gangbusters until later 2022. The last couple of years have seen a 25-30% decline in pricing, and according to the London Free Press this week, the activity in the housing market is pushing record lows – a 19% year-on-year drop in sales London, which followed a 20% drop the year before. In the words of our real-estate agent, sellers want 2022 prices, and buyers want 2008 prices. It’s going to be an interesting, ugly market for a while. This might be good for first time buyers – but a struggle for anyone else.
We are fortunate that we don’t have to move, and we really like our current home. Not everyone is in that situation.
Despite the soft market, home prices have reached levels that are very challenging for those entering the market. In 2005, the median home price in Canada was $241,000, which was just under five times the national average household income of $48,829. Today, that ratio is about 7.7 times median income – about $719,000 against a median income of $93,220. These numbers vary wildly across the country – Regina had a 3.3x multiple in 2024, whereas Toronto and Vancouver were well over 12x household income as average values.
Is real estate really a good investment?
Over the last decade, reality shows about real estate, and many, many internet ads have touted home ownership as a get-rich quick scheme. The last few years of the market suggests otherwise. I’ve met many people who bought at the peak of the market who are now underwater in the equity in their house – and when interest rates spike two years ago, the mortgage carrying costs chewed up a significant amount of their household cashflow.
And it’s not just the financial risks that are a concern. Here in Ontario the Rental Housing Tribunal is overwhelmed, underfunded, and a pain to both renters and landlords alike. It’s been that way for years. Almost two decades ago, a friend of mine rented half of his duplex. Unfortunately, his tenants only paid first and last, and then severely damaged the house’s electrical system. When he was finally able to evict them, he found a room filled with used hypodermic needles. It cost him almost a year of his life, and around $20,000-30,000 to get them out, and repair the house. He sold it shortly after, and had enough of being a landlord.
What else could go wrong?
One of the areas we have been looking at is properties close to Lake Erie. While waterfront views are desirable, we’ve seen several listings for stunning homes that were built on the sandy cliffs to the east of Port Stanley. Unfortunately, with the high lake levels of the last few years, erosion is a serious problem. Home built 30 years ago well back from the cliffs are now precariously close the edge – with it only being a matter of time before they will fall into the lake itself. A recent study estimated an average erosion rate in that areas of 2-3 meters per year!
And then there is the government…
On our drive down to look at properties, we’ve often gone down Colonel Talbot Road (The old Provincial Hwy 4). Currently, with the Volkswagen EV battery plant being developed, work is underway to widen the St. Thomas expressway and connect it to Colonel Talbot. On the weekend, we watched a relatively newly built home be demolished to clear the path for the new intersection. This same scenario has played out numerous times over the last few years in our region, thanks to road expansion projects including railway bridge projects, underpasses and the like. The recently announced high speed rail line by the federal government will also require expropriation of land along the proposed route. Homeowners often have to take the offered deals whether they want to or not. The law gives the government the right to expropriate if homeowners don’t take the deals offered. To be fair, most people I have known who have had land expropriated were offered fair, if not generous deals – but not everyone wants to move.
Reverse Mortgages.
Lots of seniors want to stay in their homes later in life, and an entire industry of reverse mortgages exist in order to allow folks to stay at home, but extract their equity. As a financial planner, I’m highly reluctant to advise people to go this route. Often life doesn’t go as planned, and most people I’ve known who go this route have come to regret it. Most people would be better off to sell, then go rent after, and live off the resulting cash. Better to invest, than have your equity or cashflow eaten up by interest payments.
No mortgage is the best retirement plan
If I can offer one piece of advice, it’s to try your hardest to hit retirement without a mortgage. Once you have a fixed income, the risk of interest rate increases impacting your cashflow become significantly higher. Again, in my experience, most families are best off selling and renting or downsizing than continuing to make mortgage payments.
Your house is probably worth less to someone else than it is to you.
We all like to think our house is worth more than it probably is on the open market, outside of weird demand peaks like we saw from 2020-2022. We looked at one house where the owner, who bought at the height of the market was asking a price above what they paid. There is no realistic way in the current market that the house is worth that much! Even if the house and property are spectacular, in a buyers market, very few houses will command the premium that we might like to think as owners.
Be careful who owns your home – and watch out for capital gains!
Over my 25 year career, I’ve seen many people put their children’s names on their principal residence in order to avoid probate. We are used to thinking of our homes as a tax-free asset, which is exempt from capital gains. This is true provided it is your principle residence. If someone is on title – like a child – who doesn’t live their, they will not benefit from the tax exemption at sale! I met a family early in my career where mom put the kids on the title based on advise she got while playing cards from her friends – they convinced her it would be a shame to pay 1.5% probate on what was then a $150,000 house. A decade later, she sold the house for nearly $650,000 at the height of the last housing bubble when she went into long-term care. Her two kids collectively had to pay $76,000 in income tax on the sale, as they were each 1/3rd owner and didn’t live there. Probate on the house at the time she changed the registration would only have been $2250.
There’s an additional thing that many people don’t realize can impact you on the sale of your home. If you have a larger property – more than 0.5 Hectares (1.24 acres), some of the property will be subject to capital gains regardless of it being your principal residence. You can, however, apply for relief if the property beyond the .5 Hectares is “necessary” for the enjoyment and use of the property. In my own situation, we have 1.88 acres of land, however, approximately 1/3rd of that land is subject to seasonable flooding, and the position of the house on high ground requires the 1.9 acre lot we own to have road access. We should have a clear case to avoid capital gains on our land, in this situation, should we sell our current residence.
Will we move….?
I’m not sure. It’s a terrible time to sell your home right now in our part of Canada – the market is soft, and it’s a real concern that it would take months to sell our current home. We were in a similar boat over a decade ago where we put in an offer on the house, and then listed ours a week later. Unfortunately, in that time period, a large Ford plant south of London announced it was closing, and suddenly 18 homes went for sale within 500 meters of our house, driving the market down. It was a stressful five months, and we ended up finding a buyer 10% below our asking price with only a week or two to spare to move to our new property. It worked out well for us, however, as even the pull back in the housing market, our current home has more than doubled in value over the years. Remember that your home, while often your biggest asset, is also often your biggest cashflow drain, and not an investment…. its home sweet home.
Ryan