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Raiding your retirement to make a down payment on your first home is a Canadian tradition that has long been encouraged by the government, but for young Canadians who bought homes at the top of the market, the strategy is looking like a disaster.

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The average sale price of a home peaked in March 2022 at $816,720, according to figures from the Canadian Real Estate Association. That figure was down to $673,335 by the end of last year, a drop of more than 17 per cent. By comparison, the S&P/TSX Composite Index rose about 50 per cent during that period.

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It’s a remarkable reversal of fortune that makes the Home Buyers’ Plan, which allows you to withdraw up to $60,000 from your RRSP and repay it over up to 15 years, look like a terrible bet.

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Before judging those who took advantage of the HBP, remember that it was endorsed by policymakers and supported by the real estate industry, which lobbied hard and successfully to raise the amount available for withdrawal as house prices rose.

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Over the years, the HBP limit has jumped from $15,000 to the current $60,000. And it’s per person, so double it for a couple who are first-time buyers.

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But here’s the other thing. It actually worked for the longest time, with Canadians securing homes to live in that also served as leveraged investments; returns were astronomical and tax-free because they fell under the principal residence exemption. Just a great deal.

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Mortgage broker Shawn Stillman and his wife withdraw $15,000 each from their RRSPs in 2017 and paid back the loans over four years, a great move as their house jumped in price by two-thirds in six years. That’s hitting a tax-free jackpot.

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Stillman said that when he deals with clients, an RRSP withdrawal can make sense if their money is sitting in cash and not earning much. He also said when interest rates were under two per cent for a five-year mortgage back in 2021, an RRSP withdrawal made little sense.

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“You could have left the money in your RRSP and probably gotten better growth,” he said.

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Carl Gomez, chief economist and executive vice-president of Centurion Asset Management, said the Home Buyers’ Plan allowed people to put together a down payment on a home, but at the height of the market, those withdrawals look ugly.

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“It’s horrible. You take your assets that were growing, and you put them into something that’s going down,” said Gomez. “The whole point of this is to borrow from your future on an asset that’s gonna grow at a tax-free, preferred rate. But it’s really contingent on hoping that you’re building your equity faster by doing this strategy.”

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For the people who borrowed at the top of the market, they have lost on their house and their retirement savings plans.

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“It’s magnified. For a long time, it was said that buying a house was your best financial move,” said Gomez, “You’re basically putting all your eggs into one basket and not diversifying your resources. That’s the biggest problem. And that’s the biggest problem Canadians have had: they haven’t diversified their asset base.”