Should you rent out your home to get more value out of it?By: Archna Walia on November 3, 2022
2022 has proved to be quite the year for the Canadian real estate market. The year began with house prices across the country going through the roof. But a few months down the line the situation changed rapidly, as factors like rising interest rates and growing inflation came into play.
Consequently, the number of monthly home sales in the country began falling. According to the Canadian Real Estate Association, national home sales fell by 3.9% from August to September 2022 alone.
House prices have also faced a considerable fall across Canada since the beginning of this year, and it seems that the situation might not change soon. As per the latest projections provided by TD bank, the average house price in Canada could further decrease by 20% to 25% in early 2023 and may experience slow growth throughout the year.
While Canada’s housing market continues to cool, there has been a substantial increase in rent prices across the country. Many homeowners might be considering renting out their property to squeeze out some income amidst depreciating home values.
Home prices drop while rental prices rise
According to Rentals.ca's October 2022 national rent report the average rent for all property types in Canada increased by 4.3% from September to October and by 15.4% annually.
While all provinces across Canada have witnessed this increase, it has been most significant in the provinces of British Columbia, Ontario, and Nova Scotia. The situation is similar for all house types (single-family homes, condominiums, townhomes, and basement apartments).
Factors like inflation and increasing interest rates have forced Canadians to reconsider their monthly spending. This has resulted in many prospective home buyers going back into the rental market. As a result, many Canadians — especially younger ones — are second guessing their ability to ever be able to buy a house.
Can renting out your home help you get more value out of it?
As many homeowners are likely concerned to see the value of their homes declining, and considering the increase in the average rental price, is renting out your house a way to make up for some of this loss in value?
“I don’t think so,” says Harry Gakhal, a Brampton-based RE/MAX real estate agent. “Yes, this is not the right time to sell, but renting your house is not a viable option, either." The question to ask here is: will the cost of rent be able to offset the change in your mortgage payment?
Homeowners who do plan on renting out a portion of their property need to consider several factors, including the change to their home insurance policy. The home insurance policy will have to be changed into a landlord insurance policy. It will also help to have clarity around whether including a requirement for tenant insurance in the lease agreement makes sense.
Has the value of my house gone down?
Following the consistent fall in home prices over the last few months, many homeowners have struggled with the answer to this question.
“It depends on the price at which you bought your house,” says Gakhal. “If you bought the property at a very high price then, yes, there might be a decrease in the value of your house. But it is only temporary. The fluctuations in the value of houses will balance out in the coming one-and-a-half to two years.”
2022 has been an unpredictable year, especially for the real estate market. The exponential rise in house prices in the beginning of the year was followed by a steep drop. These rapid changes created panic and fear among homebuyers, resulting in a significant slowdown. The constantly rising interest rates only added to this slowdown, causing many prospective buyers to step back.
However, Gakhal adds that the situation has changed in the last two months, and people have started coming out to buy again, including first-time home buyers. Though the Bank of Canada has raised the overnight interest rate six times this year, prompting mortgage rates to rise as well, his reminder is that this situation is temporary.
“Yes, interest rates have gone up, but that is a precautionary measure to control inflation. Buyers might not get these prices in the future,” he says. As for homeowners looking to sell their house, he says, “The best bet right now will be to wait.”
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