You bought at peak and the market has cratered. What's a homeowner to do?

One

last gasp for the Canadian residential market

. That was the headline on the last story I wrote for the Financial Post nearly eight years ago.

I’m back, and clearly the

housing market

had the profound ability to hold its breath longer than many anticipated. Who envisioned massive spikes in immigration, a pandemic and record-low lending rates would drive

home prices

to even greater heights?

“The housing market was a little more gaspy,” Phil Soper, chief executive of Royal LePage, one of the country’s largest residential brokerages, joked in an interview.

Soper gave me some credit: “You were right, the market got hammered,” he said, pointing to the 18 months that followed my last article, when tougher rules on financing forced Canadians to qualify at an even higher

interest rate

than the ones listed on their mortgage, in a move intended to slow the market.

But the roller coaster ride that followed only looks predictable in hindsight.

Today, some bears are thrilled by tales of lost deposits, buyers unable to close and prices off by 20 per cent from the peak. They were finally right after two decades. It’s ugly if you bought at the top, as an investor or an end user.

Don’t look backwards. It rarely makes sense unless you can learn from a mistake. The honest debate today should only be what you will do now and into the future, based on your housing needs.

“The real question is whether your housing is adequate. If it’s adequate, that’s a paper challenge and not a real challenge,” Soper said.

What you paid? Tough luck. My father, a long-retired accountant, always instilled in me that something is only worth what someone will pay for it.

There is no question that the price decline has been steep. Real estate is a local game, and national prices have limited meaning, but the average selling price for an existing home at the peak was $824,192 in February 2022, according to the

Canadian Real Estate Association

.

The peak of housing sales was 2021 but the first quarter of 2022 was red hot for activity with about 675,000 homes changing hands on an annualized basis. The number would be filled with people downsizing, some move-up buyers but also a large swath of first-time buyers who are the backbone of any housing market. Many of those home owners have seen chunks of their equity wiped out.

But before we panic about prices, context matters. The average selling price for an existing home at the end of 2017 was $496,500, according to CREA. Using the

Bank of Canada’s

inflation calculator, that puts us at around $625,000 in 2025 dollars. At mid-year, the average selling price was $691,643. Appreciation in housing prices is constantly overstated without inflation considered.

I’ve never really understood why people think the price of a home shouldn’t be

adjusted for inflation

. This is like watching reruns of The Price is Right from the 1970s and expecting to buy a car for $4,000. I’m not sure why people expect that 2017 price or even the pre-pandemic average price of $540,000 in February 2020.

How far do they want prices to fall? Shouldn’t prices be rising with inflation with maybe a couple of extra points return per year to make it a decent investment?

All that said, if you bought at the top, you have serious issues to consider, especially if you purchased a pre-construction unit and cannot get financing because you have no equity or negative equity.

John Andrew, a retired Queen’s University professor who is now an independent wealth adviser, has a family friend whose daughter is in that exact scenario.

“She has a little bit of buyer’s remorse in the sense of, ‘What have I done?’” said Andrew, who ran regular real estate seminars for some of the country’s top executives for years, about a 2023 purchase.

Andrew says to stay put and consider the long-term cost of your house, including financing. Let go of the idea that “real estate prices just always go up,” but consider the long-term return you will probably get, which he still thinks can beat inflation.

For the end user, a home, be it a low-rise property or a high-rise condo, has always been part investment and part consumable commodity.

Broader market indices have gone up for decades, but you can’t get

Canada Mortgage and Housing Corp.

-backed financing to invest in the TSX composite with five per cent down and 20-to-1 leverage, can you?

Leverage has destroyed many in real estate, especially investors. It was an easy formula to buy a $1 million condo with, say $100,000 down, watch it climb to $1.1 million in a short period and make 100 per cent on your investment.

Roll the dice, and you lose sometimes. Leverage, and the pain is far worse.

Ben Myers, president of condo research firm Bullpen Research & Consulting Inc., still believes a prime motivation for Canadians to own real estate is forced savings. He’s correct: behaviour matters.

Realtors often cite the corny expression that you can’t live in your investments, and they are partially correct. The other reason to own is security of tenure, a long-term place to raise your family without the risk of a landlord kicking you out for a variety of reasons.

If you need a house today for the life circumstances, that is justification for buying. Timing the market when it comes to a principal residence doesn’t always match your personal needs.

The investor who now has to close on a property bought three years ago? Myers said they can assign the property to someone else, but that comes with a risk that the person may not close and leave you liable.

“You may be looking at paying someone to take your investment over,” he said, adding the best option at this point is somehow to figure out a way to close, rent the unit and hope the market picks up.

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If your life changes or you really need to move, there are valid reasons to sell and take your lumps. But moving is a wealth destroyer, you do it when necessary.

When you add up real estate commissions, land transfer taxes, moving costs, breaking your mortgage, lawyers and other fees, you can easily chew up close to 10 per cent of your equity.

People get mad paying $9.95 for a stock trade, but giving up tens of thousands on a real estate trade hasn’t bothered them in a rising market.

Limit your moves, even in a falling market today. Your last move out of your home should ideally be in a box. Every one will cost you.

• Email: gmarr@postmedia.com