Housing Correction Could Unfairly Harm Young Homeowners

Posted by Gurpreet Ghatehora on Friday, December 25th, 2015 at 12:07pm.

With a 20% housing correction looming, many economists and experts are worried about how it will affect young homeowners. A recent report has suggested that 10 percent of people in their thirties and younger could end up owing more than they owe, which could place many of them in financial jeopardy.

Unlike older home owners, who’ve had time to diversify their portfolio, many young homeowners have but one big investment, and it cost a lot of money and is depreciating quickly. With the falling dollar, foreign investment is becoming more likely, and these situations could lead to a massive housing correction.

While most of the research is directed at Toronto and Vancouver, Canada’s most notorious housing markets, houses across the nation are currently overvalued by between 10 and 30 percent, according to the report. On top of this, people in their thirties have seen the debt-to-income ratio almost double since 1999, hitting a new high of 4 to 1. This is the highest ratio of any age group.

A 20% housing correction would see the average worth of this demographic drop by nearly 40 percent, or $60,000. This would place 1 in 10 into a negative net worth, something 44,000 young families are experiencing even before the housing correction.

But people in their thirties wouldn’t be the only ones hit. People in their twenties, overall, would lose less money, but it would be a larger percent of their overall worth. Conversely, people in their forties and older would stand to lose more money than those in their thirties, but such losses would represent less of a percentage of their overall worth.

In any case, a housing correction in Canada’s markets would be detrimental to current home owners, who could see major losses in their largest investments. Overvaluation, while good for some, could overall have serious repercussions for almost anyone with a mortgage, from Victoria to St. John’s.

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