For homeowners who want to upgrade their accommodations – whether for a burgeoning family, or perhaps just to enjoy amenities their current home does not have – using a home equity loan for home improvements, rather than buying up or building new, may feel like the better option. Perhaps, this is especially so in “uncertain- economic times.
At least “uncertain times” according to press coverage of Canadian real estate markets which tend to have a conservative, even pessimistic, bias.
Take this recent lead story in the Financial Post – “Canada sees ‘dramatic’ housing slowdown” – as an example. Citing a Global Real Estate Trends report by Scotia Economics (ScotiaBank’s economic research branch), the FP’s Julie Fortier writes that “moderating global growth, heightened financial market volatility and sluggish job creation have led to a “dramatic slowdown’” in Canada’s housing market.
Bad news on the surface, it would seem for Canadian homeowners. Yet, the underlying report by Scotia Economics dealing with international housing markets amongst developed nations is far less alarming than Canadian headlines would suggest. ScotiaBank’s economists note that Canadian and Australian markets remained robust and led the developed world amidst recent housing declines and relatively flat growth in most other countries. Yet, as far as sustained and sustainable growth is concerned, the Global Real Estate Trends report seems, on the whole, rather welcome news.
Scotia Economics reports that: “Average home prices in Q2 were up just 6.8% y/y, compared with 16.6% y/y in Q1. Sales, while still at a high level, have trended steadily lower alongside reduced affordability and exhausted pent-up demand. Meanwhile, increased listings are tilting overall market conditions back in favour of buyers. We expect demand to remain at a lower ebb into next year, and prices on average to be roughly flat.”
With new housing starts coming in slightly under some analysts expectations, although not all, according to financial reports at Bloomberg, the report that average home prices are down from double digit year-over-year increases to a “mere” 6.8% increase, should not necessarily be characterized as a “dramatic housing slowdown.”
Still, for homeowners who are concerned about protecting the equity they now have in their existing home, financing home improvements that would increase their home’s overall market value and thus add to existing equity by means of a home equity loan may be the commonsense option. Leveraging existing home equity through a home equity loan seems to make sense in what seems to be – at least for the near term according to ScotiaBank’s forecasts – a buyer’s market.
