COVID-19 has created major shifts in renovation spending patterns
A report from Altus Group is forecasting a 5.2 per cent decline in renovation spending – a sector bigger than new home construction – for 2020. The report places the blame for the decline on the COVID-19 pandemic.
Peter Norman, chief economist at Altus Group, explained why he’s forecasting a nationwide spend of about $76 billion, down from $80.1 billion last year. He says that in the early months of the pandemic, the home renovation industry was put almost entirely on hold with only the most essential repairs being completed and overall spending down as much as 23 per cent. Reno activity has rebounded as provinces have reopened, driven by homeowners stuck at home wanting to fix nagging issues or retrofit for a work from home reality.
At the same time, however, the report points to flagging consumer confidence. For many homeowners, taking on extra debt to renovate is not an option right now.
“Renovators appear to be very busy right now,” Norman says. “But when you start out the first five months of the year 23 per cent in the hole, and then you start to have a bounce back, there's only so much capacity. And renovators can't work 150 percent of the time.”
Canada’s economic recovery won’t bring renovation spending back to 2019 levels, though Altus is forecasting a return to $80 billion in 2021. Three quarters of the sector, the report says, is driven by discretionary upgrades rather than necessary repairs. Secured financing such as HELOCs accounted for 60 per cent of borrowing for renovations in 2019.
In its research, Altus surveyed homeowners’ “renovation intentions”, which it says were lower in 2020 than in the previous year. Sixteen percent intended to renovate, down from 20 percent in 2019. Intention to buy dropped less dramatically, with seven percent of owners planning to buy this year, down from eight per cent last year.
Norman says there are many reasons why owners might be renovating. In addition to the psychological drive of homeowners stuck at home, Norman says that if a homeowner can afford to take on debt, absurdly low interest rates make this the opportune moment.
Those factors have driven a lot of business for Rowan Smith this summer. The broker with City Wide Mortgage in Vancouver says that he’s seeing an uptick in demand for refinancing, and to a lesser extent HELOCs, to pay for updates and renovations to a property. He says that, among his clientele, working from home is resulting in a desire for renos.
“People have gone from saying ‘We can work from home,’ to ‘I have to work from home,’” Smith says. “They’re making renovations because they might as well be working in an environment they want. It’s the same logic as why people who spend a lot of time on the road buy a nice car.”
Smith says his location has helped. British Columbia has had arguably the shortest and least extreme lockdown in Canada and boasts a higher earning population of homeowners who were less likely to be directly impacted by the pandemic.
Altus’ data bear out the uptick Smith has been enjoying. B.C. is predicted to have the mildest overall dip in renovation spending across Canada, something Norman attributes largely to the province’s early successful management of the pandemic.
In this conflicted environment of social distancing and economic uncertainty limiting renovation demand, and low rates and a stuck-at-home psychology working to intensify it, Smith says the collision creates an opportunity for brokers.
“I think that those of us who support the monolines that reduced their penalties have a big opportunity sitting right in front of us right now, and I’m taking advantage of it,” Smith says.