Stop treating your home as an investment, a nest egg and a retirement plan. It’s just a place to liveA couple of decades of delirious price gains just made it seem like a good idea. Until the investment case unravelled.went away. Home prices at a national level promptly peaked and have been stagnating over the two and a half years since.
A generation of Canadians have treated housing as an asset class, an instrument of financial speculation, a nest egg and a retirement plan. But heeding that advice isn’t working out as well for the generation that followed. Plenty of them stretched themselves too thin financially to enter the market in the first place and are now at risk of falling off a mortgage cliff when it comes time to renew at far higher rates.For starters, studies consistently show that the stock market is the better long-term performer than residential real estate.investments, however, do get the benefit of leverage, as well as preferential tax treatment.
How do you tap into that wealth? You could turn to a home equity line of credit or a reverse mortgage. But they can be expensive and risky, and they may not appeal to those who have spent decades paying off a mortgage. There are obvious risks to this approach. Such an extreme lack of diversification leaves one vulnerable to the whims of the housing market. In finance speak, that’s called “idiosyncratic risk.” And Canadians are swimming it.
There are other big risks weighing on the long-term outlook. Government policy is starting to come around to the idea of improving affordability, which is a major break from the past.
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