About 70 per cent of Canadian households own their homes, and on average, more than a third of the net worth of these households is tied up in real estate. Homeowners who are hearing a lot about bubbles, crashes and slowdowns in the real estate industry can take heart from two recent reports issued by major Canadian financial institutions.

A special report about Canadian Household Finances by Scotiabank Group economist Adrienne Warren says household wealth "has reached unprecedented highs, thanks to years of solid, uninterrupted economic growth accompanied by falling unemployment and rising home and stock prices." She says that slower growth is coming and may require households to start saving more money, but that "by current metrics, the finances of Canadian households are in good shape."

The report says the collective net worth of Canadian households increased by 10 per cent during the last year, to a record 4.976 trillion. It averages out to an average net worth of almost $400,000 per family. Warren says this number is skewed higher by the extremely wealthy, and that a more representative number -- the median net worth of a Canadian household -- is probably around $175,000.

Although Canadians have been borrowing more and saving less, low interest rates and the rise in equity of their assets have enabled them to keep pace. "Looking ahead, many households may need to revisit their investment strategies as the heady pace of home and equity price appreciation inevitably slows," says Warren.

"Generating even modest wealth gains may require boosting traditional savings and/or reining in discretionary outlays." She says the "wealth effect" that encourages consumer spending is largely prompted by gains in real estate wealth. These gains "are thought to be particularly powerful, as they are perceived as more permanent, and real estate is widely held," she says.

"Appreciating home prices, rising home ownership rates and a boom in renovation activity in recent years has shifted the composition of household wealth in favour of real assets," she says. "From either a historical or international perspective, however, the exposure of Canadian households to real estate markets is not unusually high. Real estate assets accounted for 33 per cent of all household assets in the first quarter of 2006, up four percentage points from the start of the decade but in line with its longer average." But she acknowledges that again, this number probably doesn't represent a typical household. "As real estate is much more widely held than equities, we expect it accounts for more than one-third of most household's total assets. The aggregate measures are nonetheless indicative of the exposure of the entire household sector to real estate and equity markets," she says.

So how risky an investment is housing?

Craig Alexander, VP and deputy chief economist for TD Bank Financial Group, recently took a look at the long-term outlook for Canadian home prices. His conclusion is that the national average of home prices will rise at "close to a four per cent annual rate over the next 25 years, but with considerable variation at the individual city or neighbourhood level and with significant volatility from year to year."

Using history as a guide, he says the average annual increase in house prices during the last 25 years was 5.6 per cent. He says the next 25 years will drop to about four per cent because of lower inflation.

Larger cities tend to have the greatest price gains, he says, predicting that Toronto and Vancouver will see larger than average price gains because of their attraction to immigrants. Calgary and Edmonton are also expected to "break away" from their historic performance, he says. Benefiting from high oil prices, a low provincial tax rate and a younger population than many other cities, "all of the stars are aligned for Calgary and Edmonton to experience above-average price growth in future," says Alexander. "However, it should be stressed that the recent pace of price gains in those markets has been completely unsustainable and will eventually come back to earth when the housing markets become more balanced."

Alexander says "fears that baby boomers will depress housing markets as they sell their properties and move into retirement homes are likely overblown. Individuals are living longer, healthier lives. The aging population could actually lead to a modest rise in the national home ownership rate."

He says that demand for entry level homes will moderate, and people will be looking for houses more suitable for older people, such as condominiums, ranch-style homes and smaller properties. "However, support for entry-level homes could come from the immigration front," he says.

"The largest impact from the shifting population may prove to be on the high-end, largest square footage properties," Alexander says.