Slowing housing market to put pinch on home reno projects

Home renovation spending is expected to decline in 2015. Getty Images

Fueled in part by popular programs like Property Brothers and Holmes on Homes – and backed by low-interest lines of credit – Canadians have spent the past decade upgrading kitchens, adding additions and remodeling living rooms to look like the well-appointed houses seen on TV.

The renos also helped sellers command top dollar on the sale of their home.

But a new report released Monday suggests reno spending  is entering a slowdown as interest rates rise and the housing market moves into a less frenetic period.

“Over the last ten years, a number of economic factors have contributed to the strength in renovation spending,” TD economist Diana Petramala said in a new commentary from the bank.

A decent labour market, robust income gains and an ageing housing stock in need of modernizing all played a role.

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“Still, the most important factors have been the availability and the falling costs of credit as well as a record-setting decade in the resale housing market,” the report said.

Read more: ‘Is Canada about to become house poor?’

Toronto, Calgary floods provide ‘burst’

While renovation spending is set to cool across the country, according to TD, rebuilding efforts in flood-stricken Calgary and Toronto will provide meaningful offsets to the slowdown.

The storms, while devastating to tens of thousands, are expected “to lead to a burst in renovation spending,” the bank said.

Combined insurance claims and government relief in Alberta will see $4 billion spent on reconstruction of 14,500 damaged properties.

“We estimate that renovations tied to these floods could add about 1 percentage point to the overall tally in 2013 and 2014.”

“Rising home sales tend to lead to renovation spending as home buyers upgrade their new purchases and sellers prepare their homes for the marketplace,” Petramala said.

That means the robust market over the past 10 has triggered a “surge” in reno spending, the bank said, rising by an average of seven per cent annually and creating a $45 billion market comprised of big box chains, contractors and plenty of weekend DIYers.

As a percentage of total residential investment, renovation spending now sits at 40 per cent, up from 25 per cent in the 1990s, the bank said.

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“Supported by the popularity of reality shows such as Property Brothers and Holmes on Homes as well as a booming housing market, Canadians have ramped up spending on home renovations and improvements,” the bank said.

Read more: Big cities see housing boom in August

Now, the boom is poised to taper, the bank believes, led by a cooling housing market. According to the Canadian Mortgage Housing Corp., home buyers spend about $21,000 on renovations and furniture in the first year after the purchase, or about $13 billion a year based on recent sales data.

With an expected slowdown in sales looming, renovation spending will follow, TD said. The bank said sales and prices on homes  are “likely to remain relatively flat over the next 6-12 months.”

Spending growth on reno projects is forecast to fall to half the annual average over the past decade this year and next, to between three and four percent. The $45 billion market is expected to contract by two percent in 2015, TD said.

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