Moshe Molevski issues a warning about rising home prices in an article on Moneyville.ca:
Although there has been a slight price pull back during the last month or two, these market values are 100 per cent higher than a decade ago. Your house has more than doubled in 10 years, a compound appreciation of more than 7 per cent per year. This has occurred while virtually every other financial asset (other than gold) has declined in real value and housing prices in the United States have dropped by 30 per cent or more. Canadians who own their home are watching these numbers with glee, while those still renting are filled with envy and remorse. They both wonder: "How long can this continue?".
Although precise timing is impossible, he concludes that a housing correction will come and unfortunately might be accompanied with a cluster of bad news. His advice:
Owners: Don't spend your home equity quite yet. Yes, that renovation might add value to the house, but will you really be able to get your money back when you need it?
If you have been diligently paying down your mortgage and have reached the milestones of 40 per cent, 50 per cent or even 60 per cent ownership, keep it that way. Don't turn back the clock by spending equity in the hopes the 7 per cent continues indefinitely. Half of California made that mistake.
Renters: For the young renters with fragile careers, new jobs and daunting work prospects, remember that if and when the real estate market corrects itself, it won't happen during sunny economic times. In all likelihood it will coincide with a constellation of bad news.
In those times there will be a huge premium on flexibility. You will want to load up the car and move to better pastures. One month's notice to the landlord and you are gone.
Oh, and next time you are at a cocktail party, being teased about renting by some debt-laden MBA or hedge-fund manager, remind the antagonist that your personal balance sheet is deleveraged, liquid and safer. That should give them pause.