Canada’s renovation market set to cool
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19/01/2011 6:00:00 PM
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The home renovation market will taper off this year with the softer Canadian housing outlook, and will have the potential to effect employment, retail sales, manufacturing and credit demand.
Over the past decade, the housing sector’s output growth has benefited the greatest from renovations, according to a report by Bank of Nova Scotia’s senior economist Adrienne Warren. Expenditures on home improvements grew to an eight per cent inflation-adjusted annual rate, “easily eclipsing the three per cent yearly rise in new construction or the four per cent yearly direct contribution from resale transactions.”
Warren added the $44-billion renovation industry contributes to about 40 per cent of housing investment, a record share, and 2.8 per cent of overall GDP.
“Homeowners typically undertake their largest renovation expenditures in the first three years following a resale home purchase,” said Warren. “With home sales having peaked in 2007, the largest share of these ‘new buyer’ renovations should be winding down.”
With the mortgage insurance rules set to change again on March 18, economists are expecting a drop in home improvement spending.
“Some people refinance their mortgages and take out money to renovate their house,” CMHC Calgary regional economist Lai Sing Louie told the Calgary Herald. “The maximum amount that you can take out has been reduced from 90 per cent to 85 per cent. That will probably have some impact on renovation spending.”
A recent survey from Altus Group/Ipsos-Reid seems to back up this sentiment. According to the survey, renovation intentions for 2011 have fallen to their lowest level in almost a decade. Less than 10 per cent of households are planning a major renovation (more than $5,000) in the coming year, compared to a peak of almost 18 per cent in mid-2009.
The average household renovation expense in 2009 according CMHC was just over $12,000.