November 21, 2008

August 28, 2008

Economic Snapshot, August 29, 2008

Expect Renovation Spending to Downshift Over the Next Two Years

By John Clinkard - Consulting Economist, CanaData

Slowing sales of existing homes will probably cause renovation spending to cool in 2008 and 2009 following an unprecedented eight years of sustained strong growth.

According to Canada Mortgage and Housing Corporation’s (CMHC’s) recently released Renovation Forecast for 2008 and 2009, households most frequently renovate in the first three years after purchasing an existing home. Although a record level of home sales in 2007 will cause the total volume of renovation spending to remain strong in the near term, the probability of slower house sales in 2008 and 2009 should put a lid on the growth of renovation spending over the next several years.

Other factors contributing to this slowdown in renovation spending include rising construction costs, higher mortgage carrying costs and a softening in consumer confidence stemming from increased uncertainty about the economy’s short-term prospects.

While the overall outlook for renovation spending is rather guarded, the prospects in some regions of the country are definitely better than they are in others. In particular, according to CMHC, spending on home renovation in Manitoba, Saskatchewan and Alberta will lead the rest of Canada over the next two years.

In British Columbia, high existing house prices are causing people to renovate rather than move. As a result, spending to renovate existing homes in the province should grow in the vicinity of 6.5% year over year in 2008, which will be comparable to the growth of spending on new house construction.

In Newfoundland, the combination of strong employment growth and positive net migration has supported existing home sales and this should cause renovation spending to grow at a solid rate into 2010. Elsewhere in the Atlantic, the outlook for renovation spending in Nova Scotia and New Brunswick is constrained due to an increase in demand for new homes relative to existing dwellings.

While the outlook for renovation spending in Ontario will be challenged by higher interest rates and a generally slower rate of economic growth, homeowners are likely to continue to spend on measures that will make their homes more energy efficient. Finally, following a pull-back in 2008, renovation spending in Québec should rebound in 2009 as stronger employment and income growth re-invigorate existing home sales.

John Clinkard has over 30 years experience as an Economist in international, national and regional research and analysis with leading financial institutions and media outlets in Canada.

Data Source: CMHC/

Chart: Reed Construction Data - CanaData.

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