The grossly inflated cost of home ownership in Canada has a significant impact far down the line that both owners and prospective buyers alike would be wise to consider, according to a recent analysis.
In the breakdown piece published by BNN
chief financial commentator Pattie Lovett-Reid pointed at the results of the latest survey by Manulife Bank Canada, which revealed that over a third of the country’s home owners have at least once over the past year found themselves lacking sufficient funds for basic expenses.
This situation—coupled with Canada’s worsening household debt, which has seen average mortgage debt balloon to $181,000—has serious implications on owners’ futures, Lovett-Reid warned.
“For many homeowners, things are so tight financially that just four in ten are confident they will have enough money saved for retirement,” the analyst said of the Manulife study.
“It is very hard to eat a brick in retirement. You need to create some sort of annuity to fund your retirement via your financial capital because there will come a point when your human capital -- your ability to go out and earn a living -- comes to an end,” she added.
Furthermore, the fact that approximately 80 per cent of a household’s retirement wealth would come from home equity will compel home owners to make some adjustments to their future plans.
“Difficult decisions lie ahead as homeowners realize that although their net worth statement looks impressive, it is skewed toward significant home equity with limited retirement savings,” Lovett-Reid stated.
“This is going to force many to re-examine the lifestyle they hope to enjoy in their golden years,” the analyst concluded. “With so much wealth tied up in your home, the challenge will be to find ways to unlock that value.”