CHBA Economic Review – June 2016

Following the UK referendum to leave the European Union, the Canadian dollar weakened further against the US dollar, and the Toronto Stock Exchange continued to decline due to volatility in financial markets and that uncertainty surrounding the U.K.’s and the EU’s economic fates.

This uncertainty means that global interest rates and bonds yields will continue to remain at record lows. On the Canadian housing front, this translates to continued low mortgage rates for housing as financing costs will remain low due to global pressure. A low dollar and a cheaper and steady housing market will also continue to entice foreign buyers.

A recent CIBC survey  shows that renovation spending and intentions continue to grow. Altus Group expects renovation expenditures to grow from $70.1 billion to $71.4 billion this year.

This has sparked an interesting debate about the impact that ‘hot’ housing markets have on renovation intentions. It’s unknown whether there’s a trend of homeowners who’ve decided to renovate their current homes due to their inability or reluctance to purchase a new one, but it may explain the rise in ‘landscaping, patio and deck’ reno plans – spending that’s more about quality of life and usable space rather than investment.

It could also mean that homeowners are not relying on renovation to increase their value of their homes due to the current market.

Energy efficiency is also poised to be a significant driver of renovation intentions moving forward.

The 2016 CHBA Home Buyer Preference Survey showed that Canadians have a high desire for energy-efficient features and overall energy-efficient homes. Given that half of the existing housing stock was built before 1985, the Ontario government is moving to mandatory universal home energy audit for pre-sale homes, and the federal government’s climate change agenda, demand for energy efficient renovations is only going to increase.

Residential Permits, Starts and Investment
 Municipalities approved the construction of 16,232 new homes in April, up 3.0% from the previous month.
 The trend of housing starts was 191,000 units in May compared to 194,950 in April. The trend is a six-month moving average of the monthly seasonally adjusted annual rates of housing starts.
 Spending on new residential construction totalled $4.2 billion in April, up 8.4% from the same month a year earlier.
 In Q1 2016, total investment in residential construction rose 2.1% compared with the same quarter in 2015 to $26.1 billion. This marked the ninth consecutive year-over-year gain.