Tips to protect your investmentThe end is coming! The end is near! The doom of falling real estate prices has been making more headlines than ever lately. Having witnessed the recent housing crash of our American neighbours, Canadians are realizing how very real and painful plummeting real estate values can be. Frustratingly, it’s impossible to forecast exactly when and how much the markets may fall.So what’s a homeowner to do? Should you sell your home now and sit on the cash, hoping to pick up a bargain on a three-storey mansion later? What if you have finally saved up enough money and are hoping to buy a place of your own? Do you do it anyway and hope for the best? How long can a girl wait for the markets to change?Ben Rabidoux, financial adviser, real estate expert and author of the website The Economic Analyst (TheEconomicAnalyst.com), has analyzed the fundamentals of Canadian real estate on a national basis as well as provincially, and zoned in on many of Canada’s larger centers. His research suggests that overwhelmingly, Canadian cities are very overvalued. “Not every market is set to crash and there are some areas where I think real estate will continue to rise even in the event of a national housing crash,” says Ben, “However, there are some neighbourhoods that I believe will be absolutely crushed.” Ben is particularly bearish about real estate prices in Vancouver, Victoria, and the Toronto condo market.Forget timing the marketTrying to time the real estate market (or the stock market) is about as futile as trying to change the sock-dropping habits of your husband. Being aggressive may lead to some gains, but what you lose in the process can be far too costly. Much better to do your research, find a solid investment you can live with for a long time, and be patient with the inevitable fluctuations.Ben points out that those looking to sell for a quick profit need to examine all the costs, not just house prices. “Steep transaction costs and moving expenses eat into any gain realized, especially when and if prices do fall. Most people would do well to find a way to be comfortable with their home equity levels going up, down, or sideways.” This means finding something you love and holding on for the long term.Tips for homeownersThere are exceptions to every rule, as we know. (No tortilla chips on your diet, except for broken ones - the calories leak out, no?). Likewise, there are a few categories of people who might be wise to consider selling their home before prices take a plummet.R minus 5 - Many people spend their lives trading up homes and then find themselves in great big empty nests they decide to sell upon retirement. Their plan is to move into a smaller, less expensive home and net a tidy profit to fund their golden years. If this plan sounds familiar and you are within five years of your retirement, then downsizing now may be the way to go. According to Ben, higher-priced real estate will be the first to drop and will take the longest to recover.Check your equity – As Ben likes to point out: negative equity sucks. This is what happens if the value of your home drops to less than the value outstanding on your mortgage. If you have less than 15 percent equity and you think you may move within a couple years, you may want to consider selling sooner rather than later. You don’t want to have to write a big cheque to the bank after selling your house. Considering that transaction costs are typically five to seven percent, and given our human psychological tendency to overestimate the value of our beloved nests, Ben warns that you may have less equity than you think.Price to rent ratio - Ben suggests this formula to determine if you might be better off renting than owning your home. First, check rental listings to figure out what the monthly rent would be on a comparable dwelling in your neighbourhood. Multiply this 12 to get the annual rent. Estimate the value of your home (Ben suggests chopping five percent off of your assessment to account for owners’ overestimation). Now divide the house price the annual rent. If you arrive at a number less than 20, then you’re in good shape to stay put. If your number is between 20-30, you might want to think about selling and renting. If it’s over 30, you are paying too much for the luxury of owning.Don’t spend your equity – With such low rates on home equity lines of credit, it’s tempting to tap the equity in your home to add on a new deck, take a dream vacation, buy a new car or a boat for the cottage. Resist! Ben says tapping into your home equity at this point is a very unwise idea.Tips for homebuyersIf you have your heart set on buying a new home, Ben offers the following advice for safeguarding your investment.* Make sure it makes sense to buy in your market - In most Canadian cities, but certainly not all, the house price-to-rent and house price-to-income ratios are at or near their all-time highs, making a better argument for renting than buying. Check out The Economic Analyst website for a specific analysis of your city.* Down payments: the bigger the better - You are better protected from the ups and downs of prices making a larger down payment, 20 percent for example. Ben advises that your total mortgage should be no more than three times your family's gross annual income.* Buy for the long term - Recent studies have suggested that home ownership only makes sense if you can live in the same house for at least five years. With house prices currently extremely high compared to incomes and rents, there is a good chance that prices will be flat or lower in five years’ time. With a solid amount of equity and no rush to make a move, you can live comfortably through a storm of prices.Your house, your homeReal estate investments are complicated the fact that (1) they are usually our biggest financial expenses; and (2) we naturally become emotionally attached to the places we live. Waiting until you are ready to commit to a long-term decision, without the pressure to flip for profits, can make your home, your life (and even those errant socks) a lot more harmonious.