by Financial planner Robb Engen did something bold yesterday on his popular, long-running blog Boomer & Echo. He revealed his own household finances in a way that goes against the basic Canadian belief in personal finance.
Engen and his family plan to sell the Lethbridge, Alta., home they bought for $424,000 in 2011. Based on the projected sale price of $524,000, he estimates a modest average annual growth of 1.94 percent.
The idea that houses are an investment is the foundation of Canadian real estate. Mr. Engen’s story shows that we need to think more about this. Some areas of the country never participated in the increase in rental year prices, and prices are on average falling across the country. It can take years for recent homebuyers to find that prices are going up much more than they paid.
Engen’s home average annual gain of 1.94% represents the kind of analysis most people do when evaluating the investment value of their real estate purchase. Mr. Engen, who is a qualified financial planner (QAFP), dug deeper. First, he included expenses such as realtor fees, landscaping, basement renovations, property taxes and insurance. Then he added the money used for the down payment from the lost opportunity cost of investing in the house.
Final Verdict: Owning a house produced pretty much the same financial result as renting and investing the money saved while not owning it.
Mr. Engen notes that home appreciation in BC and Ontario has been a lottery for some buyers. “But for homeowners living in Alberta, Saskatchewan or Atlantic Canada, the math isn’t always so favorable. Home prices can remain stagnant for many years, and ghost costs eat into your returns over time.”
It is a timely warning. The national average home resale price was about 22 percent below the February 2022 peak in September, and there is now a risk of the economy slipping into recession. Prices may fall further or stop in different parts of the country.
In the long term, houses can be expected to rise on average at an annual level equal to or slightly higher than inflation. We may get double-digit upswings like we saw in 2021, but that’s abnormal. A market that is too hot can turn too cold.
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Confused about the differences between tax-free savings accounts and registered retirement savings plans? This detailed primer helps clear things up.
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