The average asking price for a detached home in Toronto now tops an eye-popping $1 million, it was revealed this week. That isn’t much of a surprise to agents and others in the city who have seen prices rise solidly for the past seven years of nearly uninterrupted growth.
Rock-bottom interest rates are part of the reason why home values have taken off, as buyers can afford to borrow more. But the gains have also been fueled by some heavy lifting on the part of homeowners as well as the scores of contracting companies who have flourished in Canada’s largest centre by fixing up old lots.
After moderating somewhat between 2012 and 2013, renovation spending is again soaring nationally thanks to home improvement activity in Canada’s big cities, according to new stats published by the Bank of Montreal. Oil’s downturn has yet to slow activity in Western Canada even, according to Rona, one of the country’s biggest retailers of tools and building materials.
Reno spending jumped more than 10 per cent in the final three months of 2014 (see chart), to $50 billion, compared to the same three-month stretch in 2013. The elevated clip is edging home improvement spending back toward levels not seen since the days of the recession when the federal government was purposely stimulating fix-up projects around the house via special tax credits.
Armed with still ultra-low interest rates that have only gotten better, Canadians eyeing a bigger return on the sale of their home are getting back to those 2010 spending levels all on their own – even as many confront record debt loads.
“It’s obviously a very favourable environment for that kind of spending,” said Robert Kavcic, a BMO economist.
Home improvements as a share of total money spent on Canadian residential real estate has been on a steady upward bent since the 1990s as ownership rates have increased. New housing construction makes up the other big component measured by experts.
Reno spending by weekend warriors and professional contractors peaked at 49.5 per cent of all residential investment in 2010 during Ottawa’s (successful) stimulus program. Reno’s share reached a post-recession low of 43.5 per cent in the first quarter of 2013, but has been on a pronounced upswing since.
And that trend is likely to continue, too. “The longer-term trend toward more renovation activity likely reflects an aging population and limited development space in Canada’s largest cities—in a nutshell, if you want a decent lot, you’re going to have to fix up an old house,” BMO’s Kavcic said.
A surprise decision from the Bank of Canada to cut its trendsetting interest rate a quarter of a point to 0.75 per cent in January – which has further reduced interest on lines of credit and other forms of debt – “doesn’t hurt” either, Kavcic said.