Financial Post Article

Canadians have a love affair with their homes, stretching their finances to buy them, sacrificing other things to have a house or condo and remaining deeply in debt even when the numbers suggest they would be better off renting.

But here you go: By the end of last year real estate prices had climbed about 85% over the previous decade, according to the Teranet/National Composite Bank House Price Index.

It is a passion for ownership that has put Canada in the elite company of countries with estimates that more than 70% of households now own their own home. Even young people have caught the housing bug. Statistics Canada says much of the increase in home ownership — the number was 68.4% in 2006 — has been from young people buying condos.

In the dozen years since the beginning of the millennium, home prices rose 225%. Those prices were largely financed by household debt which rose to 160% of family income in 2012 from 100% in 2000, says Benjamin Tal, deputy chief economist for CIBC in Toronto. “House prices in Canada continue to defy gravity.”

There is good reason for that.

“Everybody needs a place to live, of course, and people can be house proud. They tend to see houses not just in financial terms, but as expressions of themselves in which they like to invest,” says Derek Moran, head of Smarter Financial Planning Ltd. in Kelowna, B.C.

“Moreover, there is an expectation that we will own homes. Ownership is seen as a God-given right. And you can sell the house with no capital gains tax if it is a principal residence.”

In Winnipeg, Vic Kuzyk, a retired school principal, has owned his own house for 40 years and has added two houses nearby that he rents out.

“The house rents return 5% a year on my equity and they have more than tripled in value,” he says. “They are terrific investments.”

And he says they have given him fewer headaches than “worrying about my stocks and mutual funds.”

The property play has also produced an unmeasured but substantial effect on the value of his own house. “I bought the first rental house next to my own because it was run down. It could have reduced my own property value. I repaired it so it now can add to my own value. That’s not anything one could do with stocks or bonds.”

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