See how real estate is making B.C. families richer
Real estate is making British Columbian families richer, according to Statistics Canada’s latest report on financial security, though that is not necessarily making them better off.
British Columbia saw the median family net worth, which measures total assets minus total debts, rise 128 per cent between 1999 and 2012 to $344,000 from $150,700 13 years previously — the highest among provinces in Canada compared with the national average of 78 per cent to $243,800 from $137,000 over the same time period.
“From a financial planning perspective, that (gain) is irrelevant,” said Ian Black, a registered financial planner and principal with Vancouver firm Macdonald Shymko & Co., “unless you’re looking to get out of the market and (move) to another jurisdiction to release some of that equity.”
Black said the difficulty, particularly in the Lower Mainland, is that even if homeowners sell to downsize, they will still be looking to buy in an already expensive market.
“You’ve got to live somewhere,” he added, and “that (increase in property value) isn’t going to generate any higher income.”
The report did not contain a demographic breakdown for B.C., but on a national basis found that the families with older income earners saw bigger gains in net worth than those where the top income earner was younger.
However, those family units have also accumulated more debt: a total of $1.34 trillion in 2012, up from $864.6 billion in 2005. Most of the debt — about $1 trillion — has been used to finance home purchases. All figures are in inflation-adjusted dollars.
“That is a very significant increase … after-tax disposable income has increased by 10 per cent across all income brackets,” said federal Employment Minister Jason Kenney.
However, the high prices are also a potential problem, according to economist Andrew Jackson of the Broadbent Institute, because prices are widely projected to moderate or even fall in the next few years.
“The big question is if and when we get a housing price correction, individuals will still be holding the debt and that is a cause for concern,” he said.
High prices are also a concern in B.C., particularly the Lower Mainland, because the rising value of real estate assets can come at the expense of other savings, said James Cripps, a chartered financial analyst and certified financial planner with Vancouver Financial Planning Consultants Inc.
“What I’m seeing, actually, is more of people taking on mortgages so big they’ve finally figured out they won’t pay them off in their lifetime,” Cripps said.
So they focus on paying down their mortgage so that they can eventually downsize without debt, “and they’re not saving in RRSPs or (tax-free savings accounts) as a result.”
“From a risk diversification point of view, it’s not a great thing, especially when you consider that affordability or real estate relative to median income is right off the charts,” Cripps said.
North Vancouver realtor Helen Grant said her clients looking to downsize base their decisions on “the margin,” meaning whether or not they are able to move to a smaller home and bank some money.
“They may have purchased their home for $200,000, they turn around and sell for $1 million, then they’re sitting in a market that’s already elevated, where do they put their money?” Grant said.
Many choose to “follow grandchildren” or move to slower-paced communities on the Sunshine Coast, Vancouver Island or Okanagan, she added.
To others, depending on age and circumstance, Grant says she advises to sell and rent, because they are unlikely to see the same gains in condominium price increases that they’ve experienced in single family homes.
The average single family home price rose 221 per cent between 1999 and 2012 in the region of Metro Vancouver covered by the Real Estate Board of Vancouver, compared with 148 per cent for the average condominium.
However, Cameron Muir, chief economist for the B.C. Real Estate Association, said Metro Vancouver condominium prices have seen almost no gains since 2010.
Source: Derrick Penner, Vancouver Sun
