From ‘Housing: Real insanity’, Canadian Business magazine, April 25, 2011– “Nino Ricci, [age 51], an award-winning novelist, purchased a detached home in Toronto’s Riverdale neighbourhood in 1997 with his wife, also a writer. The price was at the very limit of what they could afford, even with help from both sets of parents. They managed, however, and watched as the neighbourhood gentrified and the value of their home ballooned. “I’ve earned more from the increase in the value of my home than I have in my entire professional career as a writer,” Ricci says. “But the only way I can use that money is to run a credit line, and that’s a dangerous habit to get into.” Still, a line of credit against the value of their home is how Ricci, his wife and two kids fund a portion of their admittedly frugal lifestyle, particularly when paycheques become sporadic. During especially tight periods, Ricci makes interest payments on the credit line with money from the line itself. (“There’s nothing in the rules that prohibits that,” he says with a hint of mischief.) Ricci knows this pattern may not be sustainable. The implications of an interest rate increase worry him, but an even bigger concern is what will happen if his home drops in value. “I keep wondering, should I sell my home today? Is this my last chance to actually have retirement savings?” he says. “We’re both writers. We don’t have RRSPs or any assurance for the future.”
The RE market has led to a perversion of the way we view income.
Also, note the sentiment: “I keep wondering, should I sell my home today? Is this my last chance to actually have retirement savings?”.
Imagine the effect that earnest price declines will have on this owner, and on all other owners dependent on the market value of their homes for their financial future. They will watch their plans dwindle, and many will try to sell with urgency. -vreaa