Every time you turn on the computer or listen to the news these days, it’s all bad news for stocks, bonds, and the housing market. Everything being reported focuses on how much prices are down from their peak levels. However, it would be difficult to find an investment or financial asset that isn’t still priced well above what its value was early 2020.

Measuring the decline from a peak valuation for any financial asset can be useful when calculating one’s loss on a particular investment. However, for investors and people who own houses, these numbers can be distracting, and often miss the underlying positive story of investment gains.

The narrative around the markets today has turned wildly negative. The rising stock and housing markets of 2020 and 2021 have reversed into declines due to a combination of worries – rising interest rates, inflation, high oil/gas prices, the war in Ukraine, risk of recession and more. A lot of people are rattled by the change in sentiment, even though we know all bull markets and huge rallies eventually come to an end.

So, when you look at your latest statement or the current selling price of a home on your street; instead of panicking, figure out how much you paid for your investment/house and compare it to what its value is today. Don’t focus on the difference between the peak and the current price, focus on where you started and where you are now.

Let’s say you’ve invested $100,000 over time, and by late 2021 it had doubled in value; before coming back down to $170,000. It is human nature to look at the numbers and feel that you lost $30,000, but the more valid comparison says you are still up $70,000.

Home values have increased with such momentum for so long that for some it’s unnerving to see prices come off their peak in many Canadian cities. If you recently purchased a home at the ‘peak’ but plan to own it for the next 5-10 years then breath easy, you should be fine.

If you purchased your home over a year ago, then you are still in great shape. In April, the national average resale housing prices was still up approximately 50% over April 2019. In the housing market, even a hefty price decline will not bring us back to pre-pandemic prices – which at that time was considered lofty.

The pandemic has altered the normal ebb and flow of the financial markets and economies over the last couple of years. Today’s uncertainties may very well cause further volatility in the markets, generating more dire-sounding reports on how much prices have fallen from their peak levels.

When that happens, turn off the noise, remember what you paid for your house or investment; I am sure most of you are still sitting on large gains in comparison to where you started.

As always, if you have any questions or concerns regarding your investment portfolio, please don’t hesitate to give me a call.  

Have a great week,

Tracey

Source: Original article by Rob Carrick, Chris Young/The Canadian Press, Globe Investor, The Globe and Mail posted 06-08-2022.

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