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Writer's pictureStephanie Paraskevopulos

What To Do When Your House Is Worth Less Than What You Paid For It

Updated: Nov 13, 2023

For the first time in decades, people are facing the new reality of declining home values


Man with stress
Photo by Tim Gouw on Unsplash

Hey it was a nice run wasn't it? Housing prices going on a meteoric rise up for decades has made people quite wealthy on paper. Just have a look at these facts from Global Property Guide (see embedded source page) :


But if you jumped on that bandwagon during the pandemic, there is a good chance that you overpaid for your house. No judgement, just facts. I mean realistically no one really believed that a bungalow in a middle class neighbourhood was now worth $500K in The Atlantic provinces and over $1M in Ontario, did they? Nah. But we have a way of disassociating our beliefs with reality because we want to believe that we can be rich off of real estate just like our parents, and our friends, and everyone doing the BRRRR method.


But somewhere in there, the music stopped in this game of housing musical chairs, and nobody noticed. Not everyone has a seat.


So now what? You finally got into the housing market, and your house value is depreciating. What do you do? Depending on your situation, you have a few options.


1 ) Do nothing. If you have already secured your mortgage and don't have to worry about re-qualifying, just sit tight. Besides a house being an 'asset,' it's also a place to live. It was high time we stop looking at our housing as our retirement funds, and started you know...using them as a place to live, raise our families and generally build a future. Who knows what the market will look like in 1 year, much less 3 or 5 when you have to renew?


2 ) Sell. If you are facing a mortgage renewal you know you will no longer qualify for, get ahead of the bank or mortgage broker telling you that you don't qualify and potentially losing your home to foreclosure. Does it suck? Yes. But ruining your credit rating or getting into a position where you are forced to sell is way less desirable. In military terms, this is called a tactical withdrawal. Just because you didn't win this battle, doesn't mean you won't win the war. Live to see another day, cut your losses, regroup and get as much money as possible for your home in current market conditions.


3 ) Speak to different mortgage lenders or brokers to check all your options. Banks aren't always the way to go....brokers have access to many lenders, so it can't hurt to reach out. You never know, there may be a way to structure your deal to make it work. Just don't do it at all costs. Saddling yourself with a ridiculous interest rate just to try and hang on to your home can be prolonging the pain. Sometimes it is better to walk away.


4 ) Get a roomie! Maybe it's not ideal, but consider opening your home to a foreign student, short term tenant, or long term roommate. Or if you have an unused space, consider turning it into a legal rental. There are safety and comfort, and lifestyle issues here, so it's important that you consider your options carefully. But, if you can no longer afford your home, you might have to consider generating rental revenue to help.


And finally.....


5 ) Move out and turn your whole home into a rental. If you can't afford your home, but you want to keep the investment with the idea that you might live in it again in the future, then consider renting the whole thing out and renting a more modest accommodation for yourself. If you are lucky and you have something like a bungalow, you could turn that house into two legal units and potentially cover the higher mortgage costs and offset some of your new accommodation. It's not forever, and you might just be able to keep your home.


A person doing  budget
Photo credit to Kelly Sikkema on Unsplash


In the same vein, maybe you have a cottage. Forget about using any of the weeks in the summer for yourself for now, and turn that asset into a revenue generating machine. Weekly rentals taking advantage of the high season often pay for the carrying costs of the cottage for the whole year, so thats something to consider. But again, for both scenarios, educate yourself about local laws, calculate your finances, and see if it works.


In the end, this too shall pass. Markets go up, and markets go down, and sometimes we find ourselves in a bad situation. It's how you deal with that situation which will determine if you recover financially in a short period of time, a long time, or never. Always look at the long game and make decisions based on facts and not emotion. It's hard not to be emotional, but speaking to professionals, educating yourself and getting the right information to act upon is what adulting is all about.


Delaying what you ideally want for now, and focusing on doing what needs to be done is the best way through this mess. Don't panic, keep your head, and get the information you need to make the best decision possible. But no matter what....act. Denial can actually hurt you in this case.


This blog is intended for information purposes only and does not constitute advice. Always consult licensed financial planners and other professionals when making life and financial decisions.


© Stephanie Paraskevopulos 2023






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