“It might seem a bit ridiculous now that the house is fully paid off, and you finally have time to enjoy it, for someone to suggest that you sell it. The challenge we are seeing is that homes represent 50 to 80 per cent or more of their net worth.”

“Many Canadians entering retirement find themselves with a significant portion of their net worth tied into their principal residence. Home ownership in many ways is the national symbol of success. Most clearly remember the first home they purchased, and it’s hard forget the years of forced savings to pay down the mortgage.
So it might seem a bit ridiculous now that the house is fully paid off, and you finally have time to enjoy it, for someone to suggest that you sell it.
But for some, this is the only way they can ensure a comfortable retirement. In first getting to know our clients we ask for a net worth statement that lists all assets and liabilities. The challenge we are seeing is that homes represent 50 to 80 per cent or more of their net worth.”

– from ‘Comfortable retirement? It’s time to sell your house’, Kevin Greenard, Victoria Times Colonist, 14 Aug 2012 [hat-tip kabloona]

What percentage of Vancouver homeowners aged 55 – 65 have “50 to 80 per cent or more of their net worth” in their homes?
– vreaa

33 responses to ““It might seem a bit ridiculous now that the house is fully paid off, and you finally have time to enjoy it, for someone to suggest that you sell it. The challenge we are seeing is that homes represent 50 to 80 per cent or more of their net worth.”

  1. That stat is a bit misleading since RE prices in this city (or Victoria to a lesser extent) have gone insane. What’s a good number for retirement? $1 million? $1.5 million? Throw a rock in this city and you will hit a house worth more than that.

    You can have over 50% of your net worth in RE and still be fine. The issue is that lots of people just haven’t saved enough for retirement. Those people seriously need to consider selling sooner than later if they don’t want to be working well into their 60s.

    • Ralph Cramdown

      The ‘interesting’ part of the population is the part that has enough saved including the house, but not nearly enough saved excluding the house. They’re gonna hafta sell (or sign up with CHIP) sooner or later. Rather like desparate short covering in the stock market, the results can lead to, er, price volatility.

  2. In terms of house prices those who don’t want to sell will have no effect on the market. It’s those who do want to sell or must sell in order to support themselves that matter. The more desperate sellers there are the quicker prices will fall.

    My own parents reached retirement age without significant assets other than real estate. I tried talking to them about how dangerous that can be and their response:
    “RE only goes up. It’s the best investment you can make. You should buy now and get on the property ladder. Don’t try and confuse me with all those facts & figures just listen to me and accept I’m right.”

    *sigh* they’re certainly acolytes in the Church of RE.

  3. “homes represent 50 to 80 per cent or more of their net worth”

    That’s because the home is probably worth more than the homeowner ever imagined it would be.e
    Is it the fault of the owner that their other investments can’t keep up with housing values?
    Like the jackal blaming the cheetah for being too fast

    • “Is it the fault of the owner that their other investments can’t keep up with housing values?”

      No of course not. It’s now a question of whether they think they have the luck ‘o the Irish or if they cite genius.

      • I’ve not met one person that said they predicted the rise of Vancouver real estate prices and got on board.

      • Didn’t most people get on board (buy) because they predicted the rise of Vancouver real estate prices (anticipated ongoing price strength)?

        If they didn’t anticipate ongoing strength, why would they buy at stratospheric prices?

    • The issue is that too many people are too reliant on housing as the primary source of their retirement funds. I think everyone would acknowledge it is dangerous to base retirement income on a depreciating, highly illiquid asset.

      • >highly illiquid asset.

        I think this is what many people miss. Unless you’ve got well in to the seven or eight figure range of money to throw around on multiple properties, if you figure your house is an asset, well, when you liquidate you’re out a place to live. Housing only really becomes a semi-liquid asset when you run with the big dogs, until then it’s a means of keeping yourself warm and dry.

  4. Point being of course that if values continue to drop, and if they plunge as far as many of the people here (and lately, it seems, many “experts”) believe, that $1 million home will be worth just $750,000. Or $500,000. Or perhaps less.

    Further complicating things for older folks who suddenly find they *need* money, not home ownership, to have a decent retirement, is that they’ll finally try to unload that ridiculously overpriced “asset” at just about the same time a whole whack of other baby boomers are trying to unload *their* depreciating “assets.”

    There will be less buyers of course, because A) The house-buying mania of the bubble will have been replaced by a strong *anti* ownership sentiment; B) So many of us *already* own, having bought during said mania; C) Mortgage regs will have been tightened and interest rates increased; and D) Overbuilding and widespread home-unloading – both by boomer retirees and all those who bought near the peak and can’t afford the onerous payments – will have created a glut of product.

    • “if values continue to drop…”

      please provide an example of a home that is now affordable for you now vs last year. Unless you’re a westside buyer there is no benefit to the stat that shows value drop. For most on this site it’s a very shallow celebration

      • I, and many other renters on this blog, can afford a house regardless of the magnitude of the drop in prices. That’s not the point. I’m not celebrating people feeling poorer. Or facing financial difficulties. I’m celebrating because the misallocation of capital and resources into the RE sector is coming to an end. And I’m celebrating because those smug types who claimed price declines “ain’t gonna happen here because of Olympics/drugs/HAM/immigration etc.” have been proved wrong.

        Mostly however I’m celebrating because this ridiculous speculative mania needs to work itself out before Vancouver can move on to other things. I love this city and believe in its future – I just don’t believe that future lies in selling property to one another at ever inflating prices fueled by easy credit & government-backed insurance.

      • Bally -> Well said.

      • f1 -> “please provide an example of a home that is now affordable for you now vs last year”

        Patience. You are aware that most here anticipate substantially larger drops going forward. The spec mania has only just now crested (2011) and will take years to deflate.

  5. Main Stream media suggesting home ownership is the national symbol for success. Of course it is, the Main Stream Media is preoccupied with Advertisers attempting to sell us things to fill these houses, whether it be pets, appliances, or automobiles in our driveways… This to me is the folly of taking anything seriously when it is presented by Main stream Media,… media that needs advertising revenue to survive…

  6. Even the comments here point to the problem. Even if a person’s house is worth $500k or $750k, if that’s 50% of their net worth, that’s a problem. Upon retiring, the need will be to have money that can be counted on to last your lifetime to pay for living expenses and unexpected costs, along with inflation. How long will a person live? I don’t know how long I will, but I know I don’t want to run out of dough at age 80 and still need it. I’ve read over the years repeatedly that a safe amount to count on given those constraints is max about a 4% annual withdrawal rate. Truthfully, I’ve just read this in various places like WSJ, various financial sites so your mileage may vary. However taken that, $1mm, only generates $40k of income, hardly living even with CPP. People have “saved” their whole life by paying a mortgage rather than contributing to investment and retirement accounts. My view is that now these are stunned when they show up proudly to present their paid off home and their inflated net worth to a fin planner and the response is something akin, to “you don’t have anywhere near enough money, let’s talk drastic options”.

    Ryan

    • Agreed. Note recently headlined study showing that 50% of 50-59 year old BCers have less than $100K, never mind $1Million.
      You can’t live on $4K per year.

      • OAS/CPP as well as various other financial breaks will make the difference for some. Lower income brackets won’t — and in many cases can’t — save, nor should they have to in the current system. Not a great retirement without savings, but neither is it destitution.

      • “You can’t live on $4K per year”

        this is very naive vreaa. If there is a Canadian citizen who has lived here more than 10 years they’re entitled to an income of at least 15K/year. Can’t live on that if you rent, but if you own your home then your major monthly expense is behind you – 15K becomes possible.

      • Royce McCutcheon

        ^Totally true. Because, really, maintenance isn’t a thing.

      • An income of less that about $22K is consider below the poverty line in Canada so I presume you are using “naive” in relation to your own point of view rather than VREAA’s?

      • @ Formula1 – My parents lived in a paid off home, and no way they could live on $15,000.00 on a year. Property taxes, home insurance, electricity and water and food would eat up everything. So no car (which means no temple visits and dr. appts are a bitch) and meds would be a budget killer.

        Ive stories of americans who live on nothing but social security in old homes they cant heat, toilets they cant flush (or they just use buckets) and can barely afford thier meds and cut thier pillls in half in hopes to keep thier cost of meds under control. Looking at my parents savings and reading these stories i now know why so many seniors are so f**king bitchy.

    • What’s that? Generates, can’t live on, 40k a year? You mean substantially more than the current minimum wage on which people in this city are expected to be able to live, that 40k?

    • ” Even if a person’s house is worth $500k or $750k, if that’s 50% of their net worth, that’s a problem”

      Depends on how old you are when you have that net worth.

  7. seeing as this story comes from Vancouver Island, and I’m in Courtenay at the moment.. here’s the market update from my neighbourhood..

    “The Comox Valley real estate market continues to favour Buyers. Last week (Monday to Sunday) there were 53 new listings, 29 price reductions and 21 sales. Sales ranged from a low of $99K to a high of $675K. There were 5 sales in Comox, 8 in Courtenay East, 6 in Courtenay City, 1 in Courtenay West and one in Crown Isle. While the downturn in sales is expected for this time of the year, listings continue to be brisk and the total inventory remains at an all time 3 year high. ” AUGUST 21, 2012 BY BRETTCAIRNS realtor

  8. I just received a letter from stats Canada informing me that I would be receiving a phone call in the coming weeks regarding a 45 minute survey inquiring about personal finances, current debt, and retirement plans.

    Me thinks that the powers that be are nervous that their electorate are in over their heads

    • UBCghettodweller

      The next election will likely be won or lost based on how the current government deals with the coming decline in housing prices and the resultant economic fallout. Now is the time to collect intelligence.

  9. http://www.voy.com/64855/1254643529.html
    yes folks, Volume (house listings skyrocketing) before Price. We know it applies to securities, and soon we see it apply to British Columbia (especially Vancouver) and Toronto real estate.

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