Equity is the market value of real property, less the amount of any liens that may exist. It could also be explained as the financial interest that a homeowner has in a property. A more in-depth explanation of home equity can be outlined as the percentage of your home that you own. This is the part of the home that you have an interest in. You might consider yourself a homeowner — but more than likely, you do not own the property free and clear. For most people, it is not possible to purchase a home without borrowing money to do so. When this happens, the lenders as well as you will have an interest in the property until any and all loans are paid off, when it becomes yours entirely. Here is an example of what home equity looks like. Let us pretend that you purchased a home for $200,000. When you made the purchase, you put down 20 percent as your down payment. In order to pay for the rest, you got a loan from a mortgage lender. This means that from the start of your purchase, you have 20 percent equity in the home’s value. The formula to see equity is your home’s worth ($200,000) minus your down payment (20 percent of $200,000 which is $40,000). You only own $40,000 of your home. Another way to think about home equity is to consider how much is owed instead of how much has been paid. Building equity in your home happens as you repay your mortgage loan. Every time you make your monthly payment, you pay interest plus a small portion of the balance of the loan (the “principal”). As your balance decreases, the equity you have increases. Equity can also increase if your home’s value increases. What can you do with your home equity? Equity is considered as an asset and is included in the total figure of your personal net worth. Therefore, you can use it for whatever you feel necessary. Some examples of popular uses for home equity are to purchase a new home, to pay college expenses for your children, to purchase a new car, for vacations or even for your daughter’s dream wedding. This money should be used wisely because it is an important asset to you. A home equity loan is also known as a second mortgage. Some may think that having this money at your fingertips is a good thing, but you should also be aware that it can be a dangerous thing as well. When you get a home equity loan, your home serves as collateral for the loan. If you fall behind on your payments, it is possible that you could lose your home due to foreclosure. All homeowners are proud of their homes. You should be very careful and responsible with your home equity. Be sure to ask questions and be sure that you understand exactly what your home equity is if you consider leveraging it for a loan or another purpose.
Yogi Berra said that “It’s tough to make predictions, especially about the future”. And all of the predictions about the housing market in response to COVID last year certainly show that he was right. Some predicted that sales would drop significantly while others suggested that prices would fall up to 18%.
And there was good reason to believe in those dire predictions: Saskatchewan was already in a recession, with its GDP having fallen 0.7% in 2019; and then the global COVID-19 pandemic hit, which plunged most economies into a recession. Yet as 2020 showed, the predictions for the real estate market were completely wrong, with sales in the province jumping 24.5% while median prices rose 1.2%.
But the variety of stimulus measures introduced have helped to get the economy going again, with Canada’s five big banks projecting that Saskatchewan’s economy will grow between 4.1% to 4.8% in 2021,[1] and fall slightly to between 3.2% and 4.6% in 2022. Due to the recovering economy, the banks are also projecting that unemployment levels will continue to decline into 2022. Although the Saskatchewan market faces long-term structural challenges, the current optimism helps to set the stage for a strong [residential] real estate market in 2021.
An RBC poll found that although only 18% of Canadians feel that the economy is stable, almost 45% feel that the housing market continues to be strong. The same poll also found that four out of five people think that owning a home is a good investment.
According to Bloomberg-Nanos, 23.2% of its respondents in the prairies felt that home prices would increase over the next six months (up from a low of 12.3% in November) while 12.9% felt that they were better off financially than they were a year ago (up from a low of 4.2% in December).
This suggests that it’s better to buy now than to wait and have to pay more (or risk being priced out of the market).
And this optimism is justified. While the pandemic has been hard for some financially (particularly those in the hospitality and retail sectors), those who were able to transition and work from home and who were able to keep working are generally better off than they were pre-pandemic.
Although the savings rate will likely fall as restrictions are eased, the fact is that people have more saved to use towards a down payment for a new home. And with interest rates at such low levels, potential buyers whose jobs haven’t been impacted by COVID should find it a very attractive time to buy.
So, what does this all suggest for the Saskatchewan market?
Until the province went into lockdown in March last year, seasonally adjusted inventory steadily increased since February of 2012, suggesting rising supply/falling demand, putting downward pressure on prices since October of 2014.
Unsurprisingly, Saskatchewan MLS® data shows a sharp spike in inventory in March and April when sales were pretty much non-existent (due to COVID restrictions) followed by a dramatic drop which levelled off somewhat in August, but that has continued to fall. At the same time, we’ve seen prices going up (dipping a little in November and December).
And then in terms of sales, we saw the strongest year-over-year January since 2012, while at the same time, the number of new listings continues to fall, suggesting strong demand and weakening supply—conditions that could continue to put upward pressure on prices and make it harder for would-be buyers to get the home that they want.
Again, we’ve seen that conditions are right for strong demand. The economy is expected to grow, unemployment is expected to fall, we’re in a very low interest rate environment, and people have higher savings. We can also immigration and shrinking household sizes to increase demand
We also know that homebuilders haven’t been able to keep up with the demand that already exists, and increased demand will only help to widen the supply gap, putting greater upward pressure on prices, making it harder for people to buy homes.
And while many are hopeful that the COVID vaccines will be a panacea and help global economies return to normal in 2021, various factors (e.g., anti-vaccine sentiment, distribution of the vaccine) are likely to stymie efforts to eradicate the pandemic. We’ve already seen vaccine shipment delays, and it’s going to take some time to vaccinate enough people around the world to truly offer protection.
As a result, we’re probably not going to see people travelling much, if at all, and we’re still not going to be able to gather in really large numbers. People will likely continue to be stuck at home THINKING about what they want in their homes and spaces, and either look for something new, or renovate their existing space. This could be a further boon to the real estate market just like it was in 2020, making it a great opportunity for those who missed last year’s boom.
Chris Gbekorbu, Economic Analyst Saskatchewan REALTORS® Association 306-791-2706
[1] The BoC is predicting negative growth for Q1 2021; “the federal government’s roll-out of its mass COVID-19 vaccination program “has pulled forward the timeline for achieving broad immunity and improved the outlook for growth in the medium term,” the BoC said. “Until the virus is under control and there is no need for physical distancing, the recuperation phase of the economic recovery will likely remain choppy and uneven. Considerable fiscal and monetary stimulus continue to be required to support households and businesses.”
Preparing your home for sale can be one of the most important steps in the selling process. The concept of making your home visable to the public is not the most appealing, for most of us. Try to step outside of your personal attachment to your property and take the perspective of a buyer. If you present your home beautifully, it will be well received by buyers.
There are some steps to consider when preparing your home. Attempt to consider all the steps, as you will want your home to be on the market for as short a period as possible!
