EQ Bank Savings Plus Account

Overvalued House?

in Home Expenses, House Prices, Mortgage Rates

Another report has come out claiming that Canadian House prices are overvalued by at least 15% (if not higher), which may taint any kind of housing market rebound that might occur in the next few months (if folks who are buying take the report to heart). This is something to keep in mind if you are thinking of buying a house in the near future, because getting value for the money you spent on the house is a cornerstone of  a house.

If you don’t own a house and don’t plan on buying a house, this information is just more lining for the bottom of your parrot’s cage, but what about for folks who own homes currently (like me)?

To me as a home owner, it means nothing, since I am not planning on selling my house in the near future, and unless there is a cataclysmic event in my life, I don’t need to worry about buying a new home, so this information is more fodder for the fireplace.

The only way this might start being important to me (as a home owner) is if the alleged value of my house dropped significantly I need to take into consideration two things:

  1. How much is the City of Ottawa valuating my house for the purposes of property taxes.
  2. How much I still might owe on my Mortgage

High Market Valuation for Property Taxes

If the city thinks my house is worth $500,000, but all the houses around me (we’ll assume comparable homes) were selling for $325,000, that would be the time to ask for the city to revisit my home’s valuation. Property taxes are a weird tax in that you are paying tax on the estimated value of something you own, so if the value of it drops, your taxes should drop. If you are in an area where you have seen housing prices drop, check out your valuation, and appeal it if you feel it is too high (it could save you some real cash).

Appeals of valuation do work (sometimes), I know of two friends who appealed their valuations, and their taxes were lowered (for a while at least).

House Value Less Than The Amount Owed On It

If I owe $325,000 on my house but it is only worth $275,000, is it worthwhile continuing to pay for this house? That’s a tricky question, if you can afford to pay for the house, and you think the house may eventually go back up in value, then keeping the house and continuing to pay your Mortgage might just make sense.

If you can’t afford your house payments, and your house isn’t worth much, should you walk away from the house? This is something you need to decide for yourself and maybe you need to talk to your Bank about the terms of your Mortgage as well.

This drop in value is what has been happening in the U.S. and has caused a lot of folks to simply walk away from their homes (a very sad time). I don’t know if I could do that, but if it meant it kept me from declaring bankruptcy, then maybe that is an option (for me).

Houses are a very odd investment since you live in it and it is a basic life need (i.e. shelter), so as long as it’s value does not suddenly sky rocket, forcing you to pay huge Property Tax bills or drop in value like a bran muffin through your colon, causing you to ask why am I paying so much for something worth so little, you wouldn’t think of suddenly selling it as an asset. Most of us just don’t think of our houses that way.

My opinion is that a house really isn’t an investment, it is where my family lives and as long as it continues to function in that fashion, I will monitor it’s value, but not worry about it too much.

Question:Do you think your primary residence is an investment? If it suddenly dropped in value, would you abandon it?

{ 5 comments }

  • Credit Cards Canada November 2, 2010, 8:09 AM

    The value of your home will fluctuate based on market conditions. As long as you have purchased a home within your financial limits, you should be ok. You can ride out any market downturn unless you need to sell your house in a such a market situation.

    People always make the mistake of biting off more than they can chew and this results in difficult financial situations in the future.

    Reply
  • SophieW November 1, 2010, 10:05 PM

    I would be momentarily sad if my house lost value, but I was smart and bought a house I could easily afford, plus I pay extra every month. It would take a cataclysmic correction if it dropped to less than I owe!

    But how’s this for a thought… most people who finance a brand new car tend to owe more than it’s worth for quite a while. Do they walk away from their cars? No. It’s all perception.

    Reply
  • Michael November 1, 2010, 1:07 PM

    But is it even possible to walk away from a house in Canada? The U.S has no recourse lending whereas Canada has full recourse lending. To the best of my knowledge, you cannot “walk away” from a house in Canada without declaring bankruptcy.

    Reply
    • bigcajunman November 1, 2010, 1:10 PM

      I have no idea, I assumed that was the case, but don’t really know.

      Reply
  • Credit Cards November 1, 2010, 1:37 PM

    Certainly no one would prefer to buy if there are chances that the prices would go down further by 15%. This even brings in picture the amount of mortgage, interest and insurance.

    Reply

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