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A real estate sign in front of a house in Vaughan, a suburb in Toronto, on May 24, 2017.

Mark Blinch/Reuters

Until the pandemic weaponized the housing market, Karen Hall’s Toronto home was going to have a big part in funding her retirement.

Ms. Hall, 61, worked in publishing for years and then had her income as an artist curtailed by the lockdowns to fight COVID. Considering herself retired, she sold her Toronto house last March and moved in with her parents. The plan: Look for an inexpensive house in a small community, buy it with the proceeds from her home sale in Toronto and use the money left over to help pay for retirement expenses.

“I have some RRSPs, but I’ve never had a huge-paying job and I never had a pension,” she said. “So, I was really counting on that equity for my retirement.”

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The housing market has not co-operated. Prices in the small communities where she’s looked are streaking higher, leaving Ms. Hall in a position of settling for less after buying her next home. “The more I spend on a house now, the less I have for living expenses, for vacations, emergencies,” she said. “I’d have to be more careful, more frugal, less extravagant.”

A year ago and more, Ms. Hall’s story would have been a textbook example of how to use home equity to generate retirement income. When you downsize the family home and stay in the city, there may not be a significant amount of money left over after buying a well-located condo or smaller house. The way to really unlock equity for retirement has been to move to a much cheaper location outside the city.

Ms. Hall bought her house in 2012 for a mid six-figure amount and sold for close to double that in March, 2020. Reacting to the pandemic, she moved quickly on the sale: “It was a whirlwind. I called my agent and I had it cleaned out, staged, painted, listed and sold within a week.”

Next, she moved into the house in the Eastern Ontario community of Trenton where her mom and step-dad live. They have a couple of basement guestrooms and she’s using them as a bedroom and studio. To find her next home, she set a budget in the $300,000 range and began scouring real estate markets in the same part of the province.

From the get-go, houses that fit the bill sold quickly and, often, for more than the asking price. One house she saw in Belleville last summer had an asking price of $450,000 and attracted two bidders, her and another party. “The other offer got it for $10,000 over the asking price and an unconditional offer. I offered the asking price with a house inspection. I’ve been kicking myself ever since for being stingy.”

Since then, Ms. Hall has been looking at homes in Gananoque, where her sister moved not too long ago. But the houses in her price range there are attracting competing bids and aren’t all that appealing.

“I just keep looking in Gananoque,” she said. “Now, I’m thinking I might have to go up to $600,000, which is double what I wanted.”

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Ms. Hall’s experience shows how the pandemic is changing the numbers for people who plan to make their house a part of their retirement plan by downsizing to a small town. House prices in these communities haven’t caught up to big cities, or anything like that. But in many small cities and towns, it’s not possible right now to cruise in and snap up a bargain property.

In search of spacious homes with property, urban dwellers have flocked to rural locations and brought big-city market conditions with them. Prepare for bidding wars if you’re buying in small communities, and to use up more of your home equity than you might have imagined in order to win. And be ready to keep some of your equity ready to pay for repairs you may not have prepared for because you had to forgo a house inspection when buying.

Ms. Hall reported midweek that she found another house in Gananoque that was listed at $550,000, a price point where houses in the city seem to generate fewer bids and go closer to asking. “We’ll see,” she said in an update e-mail. “Fingers crossed.”

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