Home Renovation Mortgages – A Growing Component of Canadian Mortgages

Home renovation mortgages – smaller and more easily financed than the larger mortgages used to finance new home construction for what have been disparagingly dubbed ‘McMansions’ – are likely to be a growing component of the Canadian mortgages market as the baby boom generation enters into retirement. Canadians tile installation, may be increasingly investing in home renovations and upgrades rather than building new, ‘greenfield’ homes – or so statistics for 2007 released by the Canadian Mortgage and Housing Corporation, Canada’s federal mortgage insurer, seem to indicate. And this, before Canadian homeowners witnessed secondhand the implosion of the U.S. housing market.

According to the CMHC’s Renovation and Home Purchase Report released in May of 2008, homeowners in Canada’s ten major urban centres spent over $19.7 billion on home renovations in 2007 – and that is only in Canada’s largest urban centres, not the smaller cities, suburbs, towns and villages scattered coast to coast. According to the CMHC’s estimates, “1.5 million households in ten of Canada’s major centres indicated they had completed some form of renovation in 2007.” To break those numbers down further, that represents 37 percent of all homeowner households in these major centres, with 31% of such households undertaking renovations that cost in excess of $1,000 Cdn.

Statistics across Canada’s five major regional centres – Vancouver, Calgary, Toronto, Montreal and Halifax – shows that the average amount spent on home renovations in 2007 was $13,200 Cdn, slightly above the $12,800 average for all ten major regional centres. That’s not McMansion money, but neither is it chump change or a mere trifling amount.

So why do Canadians invest so heavily in home renovations? “The main reason given by households for renovating in 2007,” according to the CMHC, “was to update, add value or to prepare to sell – 59 per cent. (While) 27 per cent of respondents stated that the main reason for renovating was that their home needed repairs.”

Accordingly, the top three reasons cited by the CMHC for renovations completed in 2007 were:

o Remodeling rooms – 31 per cent

o Painting or wallpapering – 27 per cent

o Hard surface flooring and wall-to-wall carpeting – 26 per cent.

These numbers, while interesting, fall somewhat short of getting to the incentives that spurred almost 2 out of 5 Canadian homeowners (to the extent that statistics for Canada’s major centers are fairly representative of homeowners across the country) to undertake major home repairs – repairs that averaged close to $13,00 Cdn. a pop.
A somewhat broader grouping of these home renovation statistics, however, may be helpful for teasing out the incentives for this level of renovations spending.

Statistics Canada, the federal government agency that assisted CMHC in compiling the numbers for the 2008 Renovation and Home Purchase Report, breaks home renovations down into two contrasting sub-groupings: alterations and improvements versus maintenance and repair. Maintenance and repairs, as the term suggests, consists of any work undertaken “to keep a property in good working condition or maintain its appearance,” while alterations and improvements are work dome “to increase the enjoyment, value or useful life of the property.”

Amongst those surveyed homeowners who did some form of renovations in 2007, according to the CMHC’s numbers, “three quarters did some form of alteration and improvement to their home, while 42 percent did maintenance and repairs.” (At first blush, the numbers don’t add to one hundred, but stats show that 18% of renovating households did maintenance and repair as well as alteration and improvement renovations.)

The predominance of households undertaking home renovations to enhance “the enjoyment, value or useful life” of their homes indicates the importance of the investment these Canadians have made in their homes. Given that 2007 was a peak boom year in terms of increased home values, its not surprising that Canadians pushed so much money back into what for many, if not most, is their biggest single investment. Look for continued growth in this area of spending as housing and real estate markets settle into more sustainable levels of growth than we have seen in the past decade.

With Canadian housing and real estate markets coming off their largest post-World War II boom, and with baby boomers increasingly feathering their nests (so to speak) for retirement, we can most likely expect the spread of McMansions to slow somewhat, while more and more Canadians tap into home renovation mortgages to enhance the enjoyment, value and usefulness of the home .

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