It's a well-known reality to those of us in the housing industry that in the City of Toronto, more and more homebuyers are reaching deeper into their pockets and maxing out their budgets to secure a home. And then - given the rapid rise in prices - those same Buyers are often finding that the only properties they can afford are often in need of a little - or a lot - of TLC.
New data suggests that this is not just limited to the City of Toronto, but is a trend that is rapidly sweeping the nation. Referred to as the 'HGTV effect' or the 'HGTV phenomenon', instances of home renovation have absolutely skyrocketed, and so has the spending behind it. Last year, the record was set at $63 billion. This year, that record was smashed when the home renovation tally came in at $68 billion.
Here are a couple of interesting articles that explore some of the why behind the movement. Last year, the Financial Post published an article 'HGTV Effect Pushes Home Renovation Spending To Record $63 Billion', making it one of the first news outlets to name this phenomenon. One year later Garry Marr, again from The Post, offers insight that is definitely worth the read in his piece, 'Canadians Spending More On Fixing Homes Than Buying New Ones'.
The most interesting facts that came out of these articles for us:
• Home renovation spending has climbed consistently for the past 16 straight years.
• This figure eclipses (eclipses!) money spent on buying new homes, which was a paltry (comparatively speaking) $20 billion.
• And last, but certainly NOT least, renovation dollars have become integral to the overall economy; the amount accounted for 3.4 percent of the GDP in 2014.
When you break those dollars down, it means three out of every four dollars are being directed towards alterations and/or improvements, with the remainder going to repairs.
This is one of those phenomena that is fairly easily to delineate. For one thing, the average consumer has compelling visual representation at their disposal through the 24-hour loop of channels like HGTV and the proliferation of home renovation, improvement and decor magazines. The creatively challenged are no longer lacking for inspiration, which may admittedly have been a barrier for some. Are you a couple? Here's a fun engaging post from team member Kellye The Newlywed that shares her newly-betrothed journey - courtesy of HGTV called Marriage 101: Sorry, HGTV - Identifying Your Real Estate Needs and Wants.
The ever-presence and popularity of this kind of media has succeeded in resetting the bar for consumer expectation when it comes to what your house 'should' look like, particularly when it's on the market for sale or lease. In fact, the bar has been elevated to the point that you can no longer just list your home as it appears in your everyday without either styling or staging it, if you're trying to get top dollar. Here's a quick "How To" called Strategies To Help Sell Your Home which is our baseline for preparing your property for sale, though you might also want to read about urbaneer’s Style Enhancement Service if you're really seeking the optimum price.
The rise of the HGTV effect is that it's driven home (pardon the pun) to numerous Canadians the value of investing in your home. However, not all home renovations are created equal. There are those that will increase the value of your property substantially, and then there are those which you may enjoy, but won’t necessarily be able to recoup the value (or near value) of your investment. Here's some of our past enlightening urbaneer posts called 'Maximize the Value of Your Condo with Smarter Upgrades' as well as this freehold-focused piece entitled, 'Eight Ways to Increase the Value of Your Home.'
Other influencing factors for this surge in renovation spending include the age of our housing stock, which often dictates the necessity to renovate, improve or repair- particularly in the City of Toronto where the majority of downtown properties were built anywhere between 1850 and 1930. Here's one of our past Dear Urbaneer posts on the subject called Why Are So Many Downtown Houses Being Renovated? With interest rates so low today, there's the increasing availability of cheap money to fund these renovations, although apparently debt is not being as leveraged as often as one might think for these projects. The recent article from the Financial Post says that only 20 percent of dollars taken from home equity lines of credits are being used for renovations.
As you are likely well aware, there is a difference between good debt and bad debt. Home renovations fall under the “good debt” category, because they are intended to increase your asset value, you do ultimately derive pleasure from your efforts (horror stories aside) and you do, theoretically, stand to generate a return on your investment. However, as urbaneer has touched on numerous times, no debt is good debt if it places you in a precarious financial position. Given the inherent variability of interest rates (controlling how much you owe) and property values (controlling how much you own), it only makes sense that caution should be your guide when you are setting your budget for renovation or house hunting. We go into further depth on this topic in the urbaneer post: 'Dear urbaneer: Should I max out my house hunting budget with CMHC mortgage loan insurance?'
The Financial Post articles touch on an interesting point too: many of these renovations are likely being conducted under the table, and urges consumer caution in this department. While you may stand to save some cash up front, there are risks involved, like not being property insured (related reading: '14 Property Features That Raise Your Insurance Premiums').
What to take from all of this? Home renovations are big business (hello, part of the GDP!). As a consumer, that means that you’ve got loads of inspiration and motivation to swing a hammer which didn't even exist a decade or two ago. Plus you’ve also got access to cheap (er) money to fund it all. As a homeowner, having choice is a wonderful tool, but you need to make sure you’ve got all the information you need to make sound property decisions.
At urbaneer, in addition to several decades of navigating the sometimes choppy real estate waters of the Toronto property market, we’ve got loads of experience with home renovations. We’ve taken on several projects over the years and have delighted in the transformation. For example, you can read about our $500,000 adventure renovating a dilapidated 1880s manse into an investment property on Prince Edward Island in the Tales Of Upper Hillsborough or read Steve's current endeavour renovating his fugly Riverdale duplex in the Tales From Tennis Crescent. These showcase how informed we can be assisting our clients in their own efforts to visualize the potential in their current or prospective properties. It's just one of the many benefits to engaging the urbaneer team.
Have questions? Please know we’re here to help!
~ Steven and the urbaneer team
earn your trust, then your business
Steven Fudge, Sales Representative
& The Innovative Urbaneer Team
Bosley Real Estate Ltd., Brokerage - (416) 322-8000
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