A recent article published by CBC states that young homeowners are in trouble if real estate prices decline in the near future. The problem is not that homeowners will lose money, but that their overall net-worth will decline while they are already in debt. Young homeowners tend to place their entire net-worth into their home. Their early payments of their mortgage will most likely be paying off interest and it will all result in a decreased valuation of their worth.
Young homeowners place the majority of their net-worth into their homes
Personally, I would like to own a home one day, as well as many other young people in the lower mainland. However, housing prices in Vancouver have been quite steep making such a scenario a distant reality. The Bank of Canada estimates that houses are currently overvalued between 10 to 30 percent. A crash in pricing, while beneficial to new buyers, will cause a significant number of homeowners to go underwater where their assets cannot cover their debts. According to a follow-up article, cities with higher prices such as Toronto and Canada will experience declines in net-worth dramatically worse than the national average. While this situation is a delicate one, it can be handled by young buyers making wise decisions in order to minimize debt and remain in a health place financially.
Homeowners in larger cities are expected to be hit the hardest