How housing market’s downturn affects the home renovation industry?
Posthaste: Correction? What correction? This city might have the strongest housing market in Canada
Canadian home prices fell the most on record in 2022. The benchmark price is now down 13.2 per cent from its peak in February, the biggest peak-to-bottom drop since the association started tracking the numbers in 2005, Bloomberg reports.
As goes the housing market, so goes the reno business. A volatile stock market, economic uncertainty and the high cost of borrowing have put the kibosh on some home improvement projects. Add to that the slowdown in home sales, and there’s less demand for the renovations people want done as soon as they get the keys to a new place.
Renovator Lou Orazem used to limit the number of projects he would quote in a week from homeowners looking to expand or upgrade their living space.
“We were getting an insane number of calls coming in. And, you know, I just had to set a limit on how many people I’m going to see per week,” he said.
He would prioritize past customers and referrals and fit in two or three visits to homeowners who inquired by phone or online.
But in June, Orazem noticed a drop in the number of inquiries to Inspire Homes, the design-renovation company he founded 20 years ago.
By July, the quality of those leads was also changing. Customers were looking for smaller jobs and essential upgrades such as repairs to leaky basements or accessibility upgrades to bathrooms. There were fewer requests for $100,000 kitchen renovations.
During the frenzied demand of the early pandemic, Heartwood Renovations in Ancaster, Ont., was booking appointments three or four weeks out. That’s down to about two weeks now, said CEO Joal Roshko, who is chair of the Renovation Council of the West End Home Builders’ Association.
The upside is that it’s now possible to get renovators and contractors to come and look at the job, something that has been difficult through much of the COVID-19 pandemic.
The renovation business has been booming since before the pandemic as consumers rushed to bolster their real estate investments with home improvements.
But that has changed with the market’s downturn, said Orazem, past chair of the Renovator Executive Committee of the Building Industry and Land Development Association.
“If your house is worth over $1 million, spending $100,000 on a kitchen renovation doesn’t seem like a big deal. When your house is worth $800,000, all of a sudden that $100,000 kitchen renovation — even if you have the cash — it puts it in a different perspective,” he said.
His first project cancellation came in July. A decline in stock prices meant the customer didn’t want to spend the money on bathroom upgrades. In August, as home prices dropped again, another job died.
Between June and September last year, Inspire Homes saw 54 per cent fewer inquiries than in 2021, and 21 per cent fewer than in 2019.
Demand for home renovations — based on internet searches — is down a “really significant” 10 to 15 per cent compared to last year, said Shir Magen, the CEO of HomeStars, a home renovation review website that surveys its users annually about their renovation plans.
“For three years during the pandemic, (contractors’) calendars were locked solid. They were booked and had wait-lists. All of a sudden, they have holes in their calendars,” she said.
Last year’s March survey of nearly 1,000 site users found that homeowners spent $13,000 on average in the previous 12 months on indoor renovations. Outdoor projects averaged $6,600.
While the number of jobs has fallen, but good news is that homeowners are still investing in larger projects to expand their living space, Magen said
“Home sales are down 50 per cent. People are requiring renovations that will let them stay there longer, extend the use of their home. We believe that we’re going to see more and more extensions, more basement renovations, more of these adaptive renovations that will help them use their space for a longer time,” she said.
Adding rental units — basement and backyard suites — is a trend Magen expects will grow in the coming year as homeowners look for additional income.
The other trend she sees along that vein is homeowners adapting to multi-generational living. Since the pandemic, people don’t want their parents going into institutional settings and they’re adding bedrooms, kitchens and living quarters to accommodate them, she said.
Roshko has observed the same growth in adding accommodation for seniors.
Although work has slowed since borrowing rates began climbing, he said interest in home renovations hasn’t waned and many homeowners are busy gathering quotes and information about projects so they can have work done when they feel more financially comfortable.
“There will be a lot of people reaching back out to us,” he said. “Not everything has to be done at the same time, depending on the scale of renovations that you’re looking to do.”
Forty per cent of renovation consumers planned to reduce the scope of their projects in the coming year, according to a Leger Marketing Survey for Financeit Canada Inc., a company that works with renovators and other home improvement merchants to offer fixed-term, fixed-rate project financing. Eighteen per cent of those said they planned to postpone their project for at least a year or indefinitely, according to a release published Wednesday.
Normally people use their home equity line of credit to finance renovations, which have already been impacted by rising rates, said CEO Michael Garrity. Younger people, with less equity in their homes, are the ones most likely to feel the pinch, he said.
The company’s research also showed 90 per cent of Financeit merchants were concerned about a slowdown in their business due to rising interest rates, inflation and economic uncertainty, he said.
Orazem of Inspire Homes said his company, which specializes in high-end home additions and kitchens, has pivoted before. During the first part of COVID, when many condo buildings weren’t allowing workers in, it spent the summer building outdoor decks. “I was able to keep my carpenters busy and keep my team together,” he said, “we might pivot a little bit.”
Also, the real estate association expects Canadian housing market will have a modest rebound in 2024.
This article was reported by the Star.