The current renovation boom hinges on expectations that price growth will last indefinitely, observers say
Renovation payments could become casualties of possible interest rate hikes, according to industry observers.
Most Canadians have been paying for their home renovations out of their own savings stashes or through home equity lines of credit (HELOC), according to BNN Bloomberg and RATESDOTCA. Total HELOC debt stood at approximately $226.6 billion as of the end of July, following a 56.7% annual increase in the second quarter.
A major driver of the renovation boom is the expectation that current price growth trends will hold for the foreseeable future, said Winnipeg-based financial planner and investment manager Olayinka Brimoh.
“They’re assuming their house will keep rising in value, but you don’t know when you will be selling, or if there will be circumstances where you’re forced to sell your home,” Brimoh told The Globe and Mail.
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Another reason for the growing popularity of renovations is the addition of amenities, Hamilton-based agent Reisha Dass said.
“I can’t tell you how often I have buyers looking for pools,” Dass said. “[Before], when you had a house with a pool, it was a niche item … The upkeep didn’t make sense for people. Now, it’s so desirable.”
Amid predictions that rates will begin rising in earnest by mid-2022, homeowners need to adjust their budgets accordingly so that they can fully pay off their renovation debts ahead of the hikes, Brimoh said.
