For most Canadians their home is the biggest investment they'll ever make — but they might be surprised to learn you can use if for more than just sleeping.
People generally don't think of their homes as a potential pile of cash in the bank, but experts say it's something worth pondering now that home prices in Canada may have hit their peak.
In fact, analysts say if finance is the only consideration, conditions now and into next year or so form a seldom seen sweet spot for using home equity as a type of asset for investment.
Why might it be a good time to sell?
At about $370,000 average nationally — and just under $800,000 in Vancouver — home prices are already at record levels. Many observers believe prices are long due for a downward correction of anywhere from 10 per cent to 25 per cent, perhaps more in some of the hottest markets.
“Home prices to income, housing price to rent, all the indicators are setting off warning signals,” said Derek Burleton, a senior economist with TD Bank. “If you are purely in it for reaping profits, now is not a bad time to sell” before prices drop.
The profits from selling a home can be used to build savings, eliminate debt, make traditional investments or, ironically, buy more real estate — albeit in a different market where home prices are lower.
Of course, even if it makes sense financially, selling the family home to rent or move to a less expensive housing market doesn't make lifestyle sense for the vast majority of Canadians.
Mr. Burleton knows how they feel.
“I wouldn't want to sell my home right now even if I wind up taking a hit on the home price, just because I enjoy where I'm living and moving is a pain,” he said.
While there's no guarantee of a correction, observers note there are additional signs that the housing market could cool off in a big way.
With ownership levels near a record 70 per cent, demand is expected to wane, making it a buyers market for the first time in years.
And Bank of Canada governor Mark Carney warned last month he was preparing to hike rates, which along with tighter lending rules being applied by federal authorities could trigger a flight from real estate.
In market terms, selling a home at the peak is a way of “locking in” profits accumulated over the past decade of price appreciation — and tax free if it's the principal home.
Meanwhile, home valuations have been rising far faster than the rent they would fetch since at least 2000. Canada's home price-to-rent ratio is well above historic norms and among the highest in the advanced world.
That is a hard indicator that homes are over-valued, but also that renting is relatively cheap compared to buying.
David Madani of Capital Economics, who anticipates a 25 per cent price crash over the next few years, cautions that like selling stock shares, timing is always tricky.
“We're dealing with irrational exuberance. We've been treating housing like some magical financial asset that is going to solve all our problems because prices are always going up,” he said.
“Of course, when the turn comes, the over-confidence that drove the market up can turn to fear. You are dealing with emotion ... so I don't believe in a soft landing.”
The market is clearly at or near peak, he said, so soon may indeed be the time to act.
But then again he felt that way a year ago, he points out, and if households had acted on his advice they might not have gotten all the value they could from the premature sale.