[randywaterhouse]

Granted, short-term losses are undeniable.

But long-term, ordinary Canadians living in these properties stand to make out alright (indeed - assuming this is not a long-term depression in prices). They get their utility out of the property (if city rents are 2-3K/mo for a 2 bedroom, that's 480K over 20 years in "cost of renting the space" which they don't end up incurring).

I cannot speak for Vancouver, but scenarios in the US where cities saw non-trivial % declines had those % returned in-kind within a decade. So we're seeing short-term losses, it will impact folks selling today or tomorrow, but not in 10 years (as I've caveat-ed along the way: probably).

[smsm42]

They get utility, but they still have to pay the mortgage based on the old price. They'd get the utility anyway, without the price drop, so utility-wise the situation is neutral. But money-wise, it is a huge loss, which can make it very hard also to move - if you paid 20% down and the price dropped 20%, now if you sell the house, you only have enough money to pay the bank, and maybe a little equity you've accumulated on the way, which may be barely enough to pay closing costs, agent's fees, etc. But now you still need a house, and you need 20% down to pay again, but you no longer have any cash, or have very little of it, way not enough to pay 20% even of the new, lower price. You have only two choices here: give up the idea of owning a home for next 10 years or so, or hold out on selling until the prices go up again. I don't see a big win here.

[princeb]

That's ok because houses everywhere has dropped 20%. And if you still can't afford to move even if your dream home has taken a price hit at least you still have somewhere to stay.

The great part about a severe correction in home prices is that.. Well I think generally speaking... Luxury homes have a higher beta than non-luxury homes, i.e. Luxury homes correct harder than non luxury homes. If you're staying in a 1m home hoping to leg into a 2.5m home, it sometimes happen that a correction drops your home value by 150k and the target 2.5m home by 650k or more. So the hurdle to change home just got cheaper by half a mil... Which is a good thing!

The scenarios you mentioned are the risks of overleveraging and that applies to everything. Few people leverage their retirement portfolios. If your home value is 90% of your retirement, why take that risk? Would you gear 90% of your retirement portfolio 4-5x and put it in a single asset?

[smsm42]

I don't think you calculations are entirely right. Let's consider home of price X. Most people would have to pay 20% down (you can get a loan for that too, but that would be overleveraging so let's ignore it). Let's say prices go down 10%. You lose 0.1X of your down payment, or half of it. Let's say you have to sell and move to another place, where you want to buy a similar house, now costing 0.9X. You need to put up 0.18X downpayment for this. However, after the sale you only have 0.1X (ignoring the sale costs, which can easily cost you another 0.05X-0.06X and making situation even worse). So you're now have to come up with 0.08X cash, and fast, otherwise you don't have a place to live in. Most people don't have this much free cash just laying around - it'd be in tens of thousands of dollars. If you are moving into more expensive home, the situation would be even worse.

[refurb]

That is true, but unfortunately not everyone can decide when they move. Losing a job, having a family member get sick, etc can force a sale and realization of loses.

But overall, housing prices do increase over time relatively inline with inflation. So even if Vancouver takes a huge hit in the short-term, over the long haul it will keep going up.

One interesting thing I noticed is that some housing markets don't really go down that much, they just stop growing. I can remember the home my parents owned in Toronto. They sold it for $325K in 1990. In 2005 I looked up the price and it was about the same. Adjusted for inflation, the it was a price decrease.

[gabbo]

> One interesting thing I noticed is that some housing markets don't really go down that much, they just stop growing. I can remember the home my parents owned in Toronto. They sold it for $325K in 1990. In 2005 I looked up the price and it was about the same. Adjusted for inflation, the it was a price decrease.

This isn't actually what happened in Toronto, to be clear. There was a huge housing boom (especially condos) in Toronto in the late 80s, followed by a bust. >100% gain in real housing prices between 1985-1989, then a 40% drop between 1989-1996. What you saw was a housing collapse which took until the 2000s to recover, not a flatlining.

[sokoloff]

Along the course of those 20 years will be 20 years' worth of property tax, home insurance, and maintenance that renters will largely not incur on top of rent (it is arguably built into the rent, of course).

The owner is not "saving" $480K, but a sum quite a bit smaller than that, likely around 20-40%.