Creativity in a Challenging Environment

Prime borrowing rates in Canada have increased 10 times in the last 18 months… The prime rate has risen from 2.45% in March 2022 to the current prime rate of 7.2%, an almost 300% increase in 18 months.

https://wowa.ca/banks/prime-rates-canada

Interest Rates: The Canadian Dilemma

This is a historic speed of increase in financing costs, off of historic low rates. The effect on the borrowing public is staggering, as many homeowners are now facing the full impacts as their locked in mortgage rates are starting to come up for renewal. Many homeowners are now “underwater” and facing housing cost increases of a comparable 300%

Simultaneously, demand for housing has increased exponentially, fueled in large part by significant immigration quotas, 1 million+ permanent residents in 2023, as well as 2.2 million non-permanent residents with work & study visas currently.

Canada just had its biggest population jump in 66 years

The pressure from this increased demand for housing, combined with increased costs in home ownership is putting significant pressure on the rental market; availability & affordability.

How does this situation get resolved when demand greatly outstrips supply?

Getting creative:

  • More houses will be listed for sale and sale prices will need to be adjusted to reflect the increased costs of home ownership.
  • In rental situations, many tenants, where able, are happy to voluntarily increase rental payments, so that the owner will not be forced to sell the property (due to significant increased carrying costs) vs the risk of trying to find new accommodation in a very scarce market.
  • ADU (Additional dwelling units) are becoming more common, as homeowners look for opportunities to support increased housing costs by using their home/land to generate rental income.

What does this have to do with M & A ??

Balancing demand vs supply is a constant pressure in all markets and this is being noted in M & A, as seller expectations need to be reset &/or repayment terms extended or more creative.

We are seeing strong activity but also a reduction in EBITDA multiples, as the market shifts from a Seller market to a Buyer focused environment.

Long term planning is more important than ever into an uncertain environment.   

Transition Architects does things differently, supporting your long-term transition goals, by providing early advisory support on expected market price, how to improve and position your business so it can shine amongst competitors. We have a history of helping entrepreneurs make good decisions during volatile times. Planning and market positioning may be the key to unlock the value of your business in a challenging market environment