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:
- How much is the City of Ottawa valuating my house for the purposes of property taxes.
- 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?