Slow Real Estate Market Sparks Renovation Revival
With resales falling and the new housing price index slipping, people appear to be staying put a bit longer and renovating their existing homes instead of moving.
Peter Simpson, president and CEO of the Greater Vancouver Home Builders Association, said he spoke with several renovators and very few are fixing up homes for resale.
“Some clients have moved in and want to renovate. The others are folks who have lived somewhere for a number of years and want to stay in the same neighbourhood. They’re renovating for their own use,” Simpson said. “They’re not nervous about spending the money either.”
With year-to-date resales down 18 per cent in Vancouver compared to a year ago, it’s no longer the smoking hot sellers’ market it was a year ago. In fact, the Real Estate Board of Greater Vancouver reported that July sales were the lowest since 2000, with sales 31.2 per cent below the 10-year July sales average.
The new housing price index slipped 0.9 per cent in Vancouver in June 2012 compared with June 2011, according to Statistics Canada, while the MLS Home Price Index composite benchmark price for all residential properties in Greater Vancouver over the last 12 months has increased 0.6 per cent to $616,000 and declined 0.7 per cent in July 2012 compared to the prior month.
New mortgage rules introduced by the federal government in July shortened the maximum amortization to 25 years from 30, which is also expected to dampen the market.
Business is definitely strong this year for Jeff Bain, owner of KJB Construction, who said renovations always pick up when sales of new homes fall off.
“Everybody seems to be keen now to spend money,” Bain said. “It’s been good all year long.”
He said kitchens, bathrooms and basement suites continue to be the most popular renovations, but people are also renovating their entire homes.
“People are staying in their homes longer than they ever have in the past. They want to stay where they are comfortable,” Simpson said.
The amount spent on renovations has gone up every year for the past several years, Simpson said, but added that he isn’t sure if that’s because more people are doing renovations or because they’ve become more expensive.
Canada Mortgage and Housing Corp’s third-quarter Housing Market Outlook, released in August, said renovation spending in 2011 was $61.7 billion in Canada. CHMC says that amount will moderate in 2012, growing to $63.3 billion, but is expected to strengthen in 2013 to $65.6 billion.
In B.C., spending on renovations in 2011 was $7.6 billion. Spending is expected to remain stable in 2012 and grow to $7.8 billion next year.
For the most part, business is good for contractors, even in this year’s moderate market, Simpson said.
“One contractor I talked to said he’s having his best year ever,” Simpson said. “He said one client bought a home and they’re spending money to update it, but most clients want to stay where they are and bring their homes up to date.”
Another contractor told Simpson he’s had some customers having a harder time borrowing money from the bank, which may be a result of new mortgage refinancing rules. “Some people seem to be getting a little pushback from the banks, or they might not be able to borrow as much as they want,” Simpson said. “If they can’t obtain the financing, they just have to scale it back a bit. With a renovation, you don’t have to do it all at the same time.”
In May, the Greater Vancouver Home Builders Association held one of its twice-yearly renovation seminar for 300 homeowners. Attendees were asked to complete a survey and Simpson shared some of the results with The Vancouver Sun.
Fifty-six per cent of respondents said they plan to renovate within the next year, while 26 per cent said within 12 to 18 months, Simpson said.
“There’s a sense of urgency. They want to renovate soon.”
Homeowners were also asked if they would need financing — 59 per cent said no and 41 per cent said yes.
Next year, when the province reverts back to the goods and services tax and the provincial sales tax, it is possible that labour on renovations will not be taxed because it was not taxed under the old provincial sales tax.
Simpson said that while it’s not known exactly what will happen when the tax reverts, the transition does not appear to be causing people too many concerns when it comes to renovating.
In his survey, he asked if people were putting their renovation plans on hold until the provincial sales tax is back and 35 per cent said yes, while 65 per cent said no.
“They’re doing renovations because they want to do them,” Simpson said. “Interest rates are still really low. People are going ahead and renovating. They want to have their new kitchen regardless of the tax.”
Simpson urged homeowners to verify that a contractor is compliant with WorkSafeBC before contracting with them for any work. It’s something that Port Moody homeowner Jan Jasienczyk wishes she had done when she needed a new roof two years ago.
The contractor she hired had documents showing that he was insured and a member of various organizations, but Jasienczyk didn’t independently verify that they were accurate. She ended up taking the contractor to small claims court when it turned out she had to redo the entire roof and her garage was damage by leaking. She eventually recovered most of the money she had paid the contractor, but she says it caused her a lot of stress and heartache.
“When you get an estimate, verify everything. Are they members of the roofing association? Do they have Worksafe?” Jasienczyk said. “Do all of those things before you commit to any kind of a contract. Do your due diligence.”
Jasienczyk ended up getting her roof re-done entirely by Penfolds Roofing, which recently announced it is launching a warranty corporation to support its roofing warranties.
Simpson said cash deals are always a bad idea, but he estimates that about 30 per cent of renovations are done under the table.
“It’s rampant. People want to avoid the harmonized sales tax or any taxes,” Simpson said. “There’s about $7.6 to 7.7 billion to be spent on home renovations in B.C. this year; I believe with that much at play there is a lot of opportunities to deal with the underground economy.”
He says people are at risk of being sued if a contractor gets injured if they are not covered by Worksafe.
“Unless homeowners want to put the contractor’s kid through university, they better make sure their contractor is fully compliant with Worksafe.”
He said it is easy to check if a contractor is compliant with Worksafe, and renovators can even request a no-cost compliance letter.