Married to Real Estate?

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Most economists predict that the Canadian housing market will continue to grow and prices will continue to climb. But what if they don’t? Substantial drops in home prices are not unheard of in Canada, for example Toronto average house prices decreased 36 percent from 1989 to 1996.In the event of major price declines the following is likely to occur:
  • ·         Drop in the value of your home, obviously
  • ·          Your investment portfolio would be struck hard if you own shares in Canadian REITs or Canadian Mortgage and Mortgage Insurer stocks
  • ·         Your taxes will inevitably increase
  • ·         If your employment status is relatively related to the real estate industry, such as mortgage broker, provider of title insurance, real estate agent and etc., you will also feel the strain on the market
  • ·         Those who are real estate rich will no longer be. In Canada there is about $1.4 trillion of household credit directly linked to claims against a property. Major price declines will result in widespread debt and Canadians will pull back on their spending, which will hit the economy nationwide

Nevertheless, there are precautions that can be taken to minimize this doomsday scenario:
  • ·         Deleverage your assets. If more than 60 per cent of your total net worth is rooted in real estate, it would be beneficial to either sell of downsize to decrease your exposure
  • ·         Diversify your investment portfolio. Odds are you will have the prevailing say in how your RRSP and other funds are distributed. It is important to have meaningful investment exposure outside of Canadian real estate
  • ·         Lastly, examine overall debt exposure. If your debt minus your non-registered investment assets is greater than your annual income, then you should reevaluate your cash flows and how you will handle a recession.




Taken from an article from Financial Post written by Ted Rechtshaffen
http://business.financialpost.com/personal-finance/the-doomsday-scenario-why-youre-more-tied-to-real-estate-than-you-think-and-what-you-can-do-about-it

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