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Almost three in five respondents to the Consumerology Report survey said their house or condominium is worth more than four years ago.Fernando Morales/The Globe and Mail

Canadians are feeling positive about their personal finances following the recession, but most of that optimism is based on the soaring value of their homes - a glow that could evaporate quickly if the housing market slumps.

In the latest Consumerology Report, a quarterly survey conducted for Toronto advertising agency Bensimon-Byrne that tracks trends in Canadian consumer attitudes, respondents were generally happy about their financial position.

Close to 60 per cent of the 1,500 surveyed in late November said their personal finances are in better shape now than a year ago, and more than 80 per cent said they expect to be doing even better a year from now.

This rosy view comes despite the fact that almost half reported that their living expenses have increased since the start of the recession, and only a minority have seen pay increases or a rise in the value of their investment portfolios.

What has changed is the value of their homes. Almost three in five said their house or condominium is worth more, or much more, than four years ago.

It appears that the boost in real estate values "is the only thing that is making them feel [positive]" said David Herle, principal of Gandalf Group, the research firm that conducted the survey.

"They feel better off than they did even before the recession, which is a remarkable situation," he said, considering that so many people say their costs are higher, they are making less money, their jobs aren't secure and their investments have slumped.

But that confidence is clearly fragile, because it rests on just one pillar. The concern, Mr. Herle said, is what happens if house prices soften sharply and those lower prices are sustained for some time. With so many people expecting the value of their home to help finance retirement, if that price drops "then you'd have a lot of people who really have no idea how they are going to retire."

Another worry is what happens if interest rates move up and mortgage payments increase, along with the cost of borrowing on lines of credit backed by home equity. Bank of Canada Governor Mark Carney needs to be aware of the impact that raising rates could have on consumer confidence, because of this dependence on real estate, Mr. Herle said.

Despite these concerns, Canadians appear to be cautious in one aspect of their finances - saving money and paying down debt. Almost 40 per cent of those who responded to the survey said they will put more money into savings or debt payments in the next year, far higher than for any other category of spending.

Many Canadians will also have to spend more money on groceries and gas in the coming year because of higher prices, the survey shows. Only a small portion of survey respondents said they will boost their spending on discretionary items such as clothes and travel.

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