If you are a typical middle-aged baby boomer with the bulk of your personal wealth tied up in the value of your home, you could soon be in for a rude shock! In the May 25, 1996 issue of The Vancouver Sun Garth Turner reports these statistics in his "Perspective" article:

"Last year in Metropolitan Toronto more that 170,000 people tried to sell their homes; 140,000 of them never found buyers. The story is not much better elsewhere. In Ottawa there are about 20 houses for sale for every buyer. Canada wide, the average price of a new home actually fell last year by 2%. And the national inventory of unsold homes has reached a level double that of 1987. In southern Ontario, the average price of resale homes has plunged 27% in the last eight years. Even in B.C.'s Lower Mainland--site of the nation's most resilient housing market--prices just keep up with inflation."

Mr. Turner goes on to note that falling birth rates and rising divorce levels are transforming Canadian society. As a result, we can expect to see a significant increase in the number of people living alone over the next 20 years.

The inevitable conclusion is that Canadian boomers contemplating retirement are going to have one major problem on their hands if they intend to rely on traditional inflation-driven real estate values to partially or fully fund their retirement capital needs. The old adage of buy a home, pay off the mortgage, sell the home, and retire on the proceeds is little more than a pipe dream in our changing society. Evidence appears increasingly overwhelming that the traditional family unit is overbuilt and in oversupply. While these warning bells do not necessarily apply to every location, and certainly not to every property, the traditional 3 and 4 bedroom home in suburbia -- where boomers are looking at downsizing -- is to be watched with caution. Mr. Turner's article reports that Toronto homeowners have collectively lost $50 billion in equity since the late 1980's. Billions more are vulnerable.

Another factor in the sliding value of real estate is the current aversion to debt of any sort. In the past, individuals may have found a fairly large mortgage to be entirely acceptable; however, this is decreasingly the case as boomers undertake to trim their balance sheets in preparation for retirement. The one significant factor working in the opposite direction is immigration (domestic and international). There are, however, indications that the immigration wave will be insufficient to overcome the decrease in domestic demand.

Conclusion

Deteriorating real estate values are eroding the wealth of many Canadian individuals who were previously counting on the equity in their homes to fund their retirement capital needs.

Admittedly, one must accept that real estate moves in cycles, but given the demographics that drove real estate prices artificially high in the 1980's, there is serious question as to how long it will be before we can hope to reap the benefits of the next wave of inflation-driven growth.

Many boomers may not be able to wait for this unforeseeable eventuality before downsizing their homes.

What is a baby boomer to do?

First, realize that counting exclusively on home ownership as a retirement nest egg is an extremely risky proposition for individuals approaching retirement.

Second, take a balanced approach to your financial planning -- have a written plan that includes the accumulation of equity in registered vehicles (RRSPs, pensions, etc.) as well as non-registered vehicles where the prospect of growth over the next 10 - 20 years is promising.

Third, if you are contemplating downsizing your principal residence, consider investing a portion of the capital proceeds into retirement accounts.

And if you are waiting for that offer which is just a little higher, you may want to take another look at the offer which is on the table.