‘Unsustainably low’ interest rates help fuel boom in home renos

FILE - In this Feb. 22, 2010, file photo, shoppers walk through the aisles at the Home Depot store in Williston, Vt. Home Depot said Thursday that malicious software lurking in its check-out terminals between April and September affected 56 million debit and credit cards that customers swiped at its stores. Target, Michaels and Neiman Marcus have also been attacked by hackers in the past year. (AP Photo/Toby Talbot, File)
The amount of money being spent on home renovations this year has eclipsed the amount spent on new home construction, BMO said Wednesday. AP Photo/Toby Talbot, File

Recently bought a house and are now swapping out that dated glossy tile for a slicker hardwood or engineered floor? You likely haven’t forgotten about the updating to the kitchen your agent suggested.

Rest assured, you’re far from alone at the moment, with home renovation spending entering a renewed boom this year.

As homes sales across many cities continue to post unexpectedly strong gains, new data published Wednesday suggests homeowners are spending an unprecedented amount of money overhauling living rooms, front halls and bathrooms, aided by ultra-low borrowing rates.

In fact, economists at BMO say more money is being plowed into home renovations at the moment than into new home construction – only the third time on record that’s happened (see chart).

MORE: Canada’s next housing boom? Renos

That’s an impressive feat given new construction is still trending at “elevated” levels according to other economists at TD Economics, who suggest there’s “moderate overbuilding” of residential property across Canada, led by condo construction in certain pockets, like Toronto.

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The CMHC said Wednesday the annualized pace of construction on new homes hit 197,343 last month. That’s up 0.5 per cent from August — and well above the 180,000 level TD said is a more sustainable pace.

“New home construction gets most of the attention in Canada but renovation activity pulls as big a weight as well,” BMO’s Robert Kavcic said.

In fact, a bigger weight at the moment, according to Kavcic’s table.

Renovation spending is (again) outpacing new home construction. The last time that happened? The 2008 downturn.
Renovation spending is outpacing new home construction. The last time that happened? The 2008 downturn. BMO Economics

‘Accelerated’ reno spending

The BMO economist said renovation spending “accelerated” through the spring months by 6.9 per cent versus how much Canadians spent in the spring 2013.

The pick-up in spending aligns with the resumption of debt growth – both mortgage and mon-mortgage related – this year. Experts at RBC Economics said Wednesday the most recent credit trends show Canadians racking up more debt again.

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RBC said it expects consumer behaviour to “temper” soon as lenders move away from “unsustainably low interest rates.”