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Planning to renovate instead of move? You’re far from alone

Big box renovation chains like Rona, Home Hardware and Home Depot appear poised to be direct beneficiaries of the next boom in Canada’s housing market – renos.

CMHC, the country’s government-backed home loan insurer, said Tuesday that the pace of home construction cooled in August, with most experts suggesting they expect a further deceleration ahead.

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Why? Because while “the housing party continues for now, it can’t last forever,” Brian DePratto at TD Economics said.

That’s something we’ve been hearing for some time now.

But experts say there isn’t much more leverage left in the tank for borrowers to absorb, and a new report from CIBC this week suggests many buyers over the last few years will be hard-pressed to move on from starter homes they’ve already paid a lot for.

That’s because the so-called “move up” dream homes many first-time buyers look to purchase later on, mostly in the single-detached category, have been rising in price through Canada’s current boom at a much quicker rate than other housing segments like condos, townhouses, semis or even smaller single-detached houses.

CIBC points to Toronto’s heated market as a main example, but says the price inflation story is “ditto for other cities such as Ottawa, Calgary and Edmonton where the move up category has risen notably faster” than lower priced starter homes.

So instead of moving up into those larger four-bed, three-bath bungalows, many have started to add extensions and redo their current homes, according to CIBC.

“With limited move up options, it’s no surprise then that many Canadians choose to renovate their existing homes,” CIBC’s Benjamin Tal said.

He notes that since 2009, reno projects as a slice of the overall residential investment pie in Canada (the all-in amount of cash – or debt — businesses and individuals spend on homes and real estate) has risen to 46 per cent, annually – or nearly half of all spending in the sector each year.

“By far the largest share on record,” the economist said (see chart).

And spending on renos may well increase.

“Renovation activity will remain robust,” Tal said, “and, in fact, might accelerate in the coming years.”

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