Reno shows and cheap credit compound price risk in housing

We humans are like crows–easily distracted by shiny stuff. As always, the factor that most determines whether an asset ends up being accretive or not is the price we pay to acquire it. Lax lending and low rates make present prices possible, but often not investment worthy. See: Reno shows having profound impact on buyers.

Dubbed the HGTV Effect by some agents after the television channel that focuses on home improvement shows, a growing number of buyers are splurging on homes simply because they’re decked out with granite countertops, stainless steel appliances and a fresh coat of a trendy paint colour.

“The influence of all of these television shows has really hit the mainstream buyer,” says Desmond Brown, another Toronto agent. “They want what they see on television.”

Brown says spending as little as $20,000 to $30,000 to renovate a kitchen or finish a basement, and hiring a stager to remove clutter, replace light fixtures and lighten up the walls, can boost a home’s sale price by as much as $150,000 in Toronto’s real estate market…

“Right now prices are so high in Toronto that buyers can’t afford any renovations. But what they can afford is a bigger mortgage. So if they see something that’s completely finished and ready to go and it looks fantastic and it sparkles, they’ll pay all kinds of money for it.”

Back to the central theme of the past few years, low borrowing costs have allowed many assets and services to become outrageously expensive. The prices being paid are likely to haunt current buyers for years to come.

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