Varun Kohli August 25, 2022 No Comments

The rise in interest rates has reshaped the market. The impact of such rapid and significant hikes has shifted the psychology of many buyers, and has pushed some developers to freeze their building plans. The situation could have evolved in a more incremental and healthy way but the BOC panicked and took too long to realize the immensity of the inflation problem. What we are beginning to see are some price slowdowns and declines, especially in those markets that were most stimulated by COVID demand (Durham, Caledon, Peterborough, and others). Some financial institutions have released analysis of the rate hikes (Desjardins), and predict price declines in the range of 15-20%, but overwhelmingly outside of major downtown cores. Desjardins saw cities like Peterborough and Orangeville and cottage country suffering the most from price declines. What we are seeing now is that buyers who scooped up property at the height of COVID demand are now being left with less equity as their values decline from higher rates.

For example, let’s take a retired couple who sold their downtown Toronto condo for $750,000 and moved to a large home in King County they paid a hefty premium for. They wanted space, quiet, less traffic, and comfort. After buying they saw their new neighbours sell their homes for $1.1 or $1.3 million, reinforcing the sense of value and desirability of the large suburban home they just bought. But now, with high inflation, high rates, and fear of COVID having largely subsided, their large suburban home wouldn’t sell for more than $900,000. What do they do? Weak prospective buying demand lowers the couple’s options. Higher rates mean an appraisal won’t mark them down as highly as they had expected. What a neighbour sold for 6-9 months ago is irrelevant now. One potential option is a renovation loan with Tembo. Why not spice the property up before a re-sale? In less than 2 days, Tembo can approve a renovation loan. Money can flow quickly without straining your line of credit, savings, or credit cards. Finishing a  basement, upgrading a kitchen, or marbling up another bathroom can add tens of thousands to the value of a home. A smart, well thought out renovation can dramatically shift the value equation of a home.

There are plenty of contractors looking for work in an increasingly bearish real estate market where people are strained for cash or spending more disposable income on higher mortgages. A more luxurious home can attract higher end buyers who are looking for good deals in the current environment. Turning an average suburban basement into a separate potential rental unit (vacancies are low, rents are high, and there’s tons of jobs out there) can attract buyers looking to rent property out and can turn one home into many. Renovation possibilities are endless. In March we wrote about a homeowner who received considerable media coverage for renovating their Little Italy home in Toronto to be environmentally friendly, energy efficient, and modern. The home was completely transformed and modernized, and its value skyrocketed. Remember that even a basic, standard overhaul of a kitchen with new appliances and marble finishes can add tens of thousands of dollars to the value of your home and can be accommodated quickly and affordably at Tembo. Do not underestimate the potential of your home and the home renovation options you have at your disposal in this market. A Tembo home renovation loan can be a complete game-changer that bridges the gap between pre-inflation prices and the reality today.

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