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Renovation spending on the rise

(Special) - Drive around virtually any city or town across Canada this summer and you'll likely see homes undergoing renovations.

According to a report from Altus Group, Canadians' total spending on home renovations is continuing to increase. It rose from $61.5 billion in 2011 to $63.4 billion in 2013 and is forecast to hit 65.2 billion this year and $67.3 billion in 2015.

In fact, residential renovation spending in Canada has been on an upward trend for a long time and has more than doubled since the late 1990s. It last went down in 1998 -- a modest drop of only two per cent in real terms.

Renovation spending is expected to increase in all regions of the country this year and next, with the fastest growth occurring in Alberta at about five per cent each year. Renovation intentions are lower in British Columbia and Atlantic Canada compared to other regions, according to Altus' report.

Ontario and Quebec together account for the majority of spending on renovations. Ontario is expected to grow near the national average while Quebec's renovation sector is expected to moderate as its economic performance is expected to lag that of the country.

Residential renovation spending is defined as the sum of residential alterations, conversions and repairs. It is a very important contributor to the Canadian economy, representing approximately 3.7 per cent to total gross domestic product and is more than the amount spent on new residential construction.

Improvements are the largest component of renovation spending, typically accounting for about three of every four dollars spent on renovations, with the remainder made up of repairs and, to a lesser extent, conversions.

The vibrant home renovation industry is being fuelled by a number of factors -- low interest rates, government tax credits, rising home values and what Altus Group calls the Home and Garden TV (HGTV) effect.

"The increase is a combination of an increased willingness and ability to undertake renovation work," the report says. "Willingness, at least in part, can be attributed to what is sometimes referred to as the HGTV effect. With HGTV Canada launching in late 1997 and starting the home improvement television programming craze, many homeowners did not know how badly they really wanted new designer kitchens and bathrooms then. The increasing willingness/desire was reinforced by improved ability/affordability to undertake renovations."

Low interest and mortgage rates have made borrowing for home renovations and lot easier and more affordable. Lower mortgage rates at renewal time have improved the discretionary income for many homeowners, and some of that income is being put toward renovations.

Rising home values across the country is another factor. As prices rise so does equity and many home owners are tapping this equity for lower cost borrowing by refinancing their mortgages or through home equity lines of credit.

"Essentially, home owners pulled money out of their homes only to put it right back in," the report states. "Secured lines of credit - primarily home equity lines of credit (HELOCs) - and mortgage refinancing are the most common methods used to finance renovations."

Rising home prices are likely to continue across the country. The Toronto Dominion Bank recently upgraded its expectation for home sales and prices due to continued low interest rates and increased demand for housing.

The bank says it now expects home prices to rise an average of five to six per cent for the remainder of 2014. And new housing starts in April also were on the increase in many parts of the country including Newfoundland, Prince Edward Island, Quebec, Ontario, Alberta, Manitoba and Saskatchewan.

The prospect for housing prices, equity, continuing low interest rates, renovation spending and the sector as a whole remain positive. "There's no correction yet - growth of about three per cent in real terms is expected for 2014 and 2015," the Altus report concludes. "The good news for firms in the renovation sector is that we don't foresee an end to the expansion trend in the near term."

Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors.

Copyright 2014 Talbot Boggs

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