Our other real estate problem – people have too much wealth tied up in houses – The Globe and Mail

A house that sold for more than the listing price in West-end Toronto on April 24.Graeme Roy/The Canadian Press

In no way does the sharp decline in house prices crush the idea that owning real estate builds wealth.

But, wow, Canadians have put way too much faith that owning houses and condos will bring them financial success over the long term.

An Ipsos poll of 18,000 people documents how much of this country’s total household assets are tied up in real estate. For all Canadians, it’s 77 per cent. Generationally, real estate’s share of assets ranges from lows of 68 per cent for seniors and 71 per cent for boomers to a high of 89 per cent for the young adults of Gen Z.

Houses bought years ago are still up nicely in value, but the market’s sharp decline from its peak on a national basis highlights the risk of depending on housing to build a lifetime’s wealth. Instead, diversify into conventional assets like stocks and bonds. The long-term returns will compare well to real estate and deliver much more real-world utility.

Canadians’ wealth suffers biggest drop on record as markets, real estate swoon

Falling prices have not fixed the No. 1 problem in real estate, which is affordability. We’re making zero progress here because rising interest rates nullify the benefits of lower prices.

Excessive reliance on real estate for wealth building is equally tough to address, partly because owning a lot of real estate sounded earlier this year like shrewd financial planning. House prices kept streaking higher in a market where bidding wars were the norm and winning offers came in way over asking. The buying philosophy: Just get into the market and watch your equity grow.

The average national resale house price peaked at $816,720 in February, which was a 20.6-per-cent jump over the same month in 2021. As per July data, the average resale price has fallen almost 23 per cent since then.

RBC Economics said this summer that the housing market could experience a peak-to-trough sales decline this year and next of 42 per cent, which would be worse than declines in the four previous downturns in 1981-82, 1989-90, 2008-09 and 2016-18. In British Columbia and Ontario, the RBC forecast has resales falling 45 and 38 per cent, respectively.

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Source: https://www.theglobeandmail.com/investing/personal-finance/household-finances/article-our-other-real-estate-problem-people-have-too-much-wealth-tied-up-in/