Lock in your gains, sell your house now...

...or sell it two years from now, in many parts of the country it's not going to make much of a difference, say the experts

By Charles Corvallis

Here's a question many doctors would like to know the answer to: Is your house going to be worth more a year from now — or less? It's an excellent question and one a gaggle of economists and other financial experts at the banks and real estate companies are also pondering.

Clearly we're sailing into unfamiliar economic territory. Barron's, the influential US business paper, last week suggested that the convictions of Enron bad-boys Jeffrey Skilling and Ken Lay represented the end of the 90s in much the same way Watergate and the convictions of Nixon's partners in crime, Ehrlichman and Halderman, wrote the final chapter on the 60s.

A DOWNWARD TURN
The signs are everywhere. Retail sales at Wal-Mart, "the world's biggest retailer," are off for the third consecutive month. Soaring gasoline prices are the newest suspect for the downturn in consumer spending. The argument goes that shoppers, particularly middle to lower income consumers, have less to spend now that gasoline is taking a bigger bite out of the weekly paycheque and there's no sign things are going to get better soon. While the TSX looked strong in the first quarter riding the crest of the rising prices for oil, gas and minerals it, like jittery markets everywhere, has begun to falter. In the US the Standard and Poor's index has lost all of its first quarter gains and is up less than 1% since last November. The rising Canadian dollar has put a serious crimp in manufacturing exports resulting in layoffs in industries like clothing and printing, which had boomed when the dollar was trading at $0.65 cents against the US greenback.

To come full circle, the Bank of Canada continues to ratchet up interest rates to cool inflation (gas prices are again the boogie-man here) and that translates into higher interest charges on mortgages. It's too early to tell if high mortgage rates will be enough to cool the ardour of would-be homeowners, though there are signs in Vancouver and Toronto that the housing market is weakening. (The only province that truly continues to boom is Alberta which has everything to do with the price of oil and nothing much to do with anything else except that it's a lovely place to live, especially if it's easy to find work.)

SALES SLOW
In Vancouver the number of housing sales — if not the prices — fell 17.7% in 2005; condo sales dropped 18% and in West Vancouver the picture was bleaker still with sales last year off fully 23% over 2004 levels. This year the number of listings is down across the board. That said, prices continue to soar. The average cost of a house in Vancouver now hovers just below $500,000 yet first quarter sales are up a remarkable 22% over the first quarter of 2005. Even in Victoria, first quarter to first quarter comparisons show a 13% jump. That said, there are strong signs the boom is peaking out principally because potential buyers are maxed out. With mortgage rates still at a relatively low 6.38% in BC, the average homeowner spends a whopping 42% of income on housing expenses — taxes, utilities, and upkeep. This record high strongly suggests that present prices have gone beyond the reach of most buyers.

In other parts of the country, the market in Manitoba and Saskatchewan remains steady with average 8% gains year-over-year with little change anticipated. From the Ontario border east markets are softer. Here too much of the attention is focused on the ability of buyers to pay ever increasing prices for homes. In Toronto the average price of a condo is $206,453, up 7% from a year ago, but most observers from the banks and real estate companies are looking to more moderate increases of 3-5% this year both in Ontario, Quebec and the Atlantic provinces. New housing stats are expected to be lower as well.

TO SELL OR NOT
Numbers like these are enough to give some physicians a sense of unease. And with reason. If you're within five years of retirement and are counting on the equity in your home to provide the major portion of your retirement nest egg, you have some reason for concern.

Housing prices go up and down. No physician who has owned property for the last 20 years needs to be reminded. The early 90s saw hundreds of thousands shaved off house prices in Ontario and Quebec and this latter province has seen serious swings each time a new party is elected, be it liberal or PQ.

A Montreal GP purchased a duplex in that city's Notre-Dame-de-Grace district in 1987 for $92,000 and put in an additional $50,000 in improvements as the market continued to rise, feeling certain that he would more than make it up in rental income. Then in 1991 there was a glut of rental units available after another ambitious building boom that left owners scrambling for tenants and saw the collapse of several developers who were stuck with empty high-rises. The doctor's upper flat went empty for almost three years. After 1995 activity began to pick up and by 2003 there was a serious scarcity of rental space in the city. The MD currently receives almost $4,000 a month in rental income from his property, which has a market value of about $600,000. He worries that we're on the verge of a 1990s meltdown in prices all over again and wants to sell and invest the funds in the stock market. His spouse wants to hold on to what she still regards as a good thing.

ONLY TIME WILL TELL
Both partners have a good chance of being right. Real estate prices are highly unlikely to continue to rise as they have. Most experts expect the economy to go into a period of marking time. Real estate prices will moderate but so will the stock market. The one caveat for the Quebec couple is who is going to win the next provincial election. A PQ government would create a somewhat softer market. On the other hand, a liberal victor would not ignite a rise.