Making home improvements financed by second mortgages or home equity loans rather than trading up to a new and larger home may make more sense in a housing market where routine double-digit price gains can no longer be expected.
A modest 0.1 per cent dip in new home prices in July marked the first drop in new home pricing in more than a year. Combined with a drop in new home construction tracked by Statistics Canada, the Globe and Mail reports there is now “evidence that [the] real estate slowdown seen this summer in the resale market is beginning to bleed into the new home sector.”
The Globe reports that the decline in new housing starts is normally a lagging indicator of a cooling housing market, as home builders slow down construction “to avoid creating a glut of unsold houses on the market.”
While skittish doomsayers are quick to conclude that these numbers are an indicator of a deflating housing bubble like that witnessed over the last several years in the U.S, that is not the majority view of analysts. Rather, a former seller’s market is now more evenly balanced between buyers and sellers.
The view of economists, according to the Globe, say Canadian housing markets “will remain [balanced], with some slight price declines – and avoid any sharp market correction in which homeowners see the price of their homes plunge.”
In a balanced market leveraging existing equity through second mortgages to make necessary or desired home improvements may be one strategy to continue building healthy, long term home equity. In the longer term, analysts seem to be largely agreed that home price increases will return to historical norms that largely track inflation and wage growth.
