Earlier this month Statistics Canada reported that the value of renovations to residential properties fell to its lowest level in two years during the July-Sept 2014 quarter. Although total renovation spending is up 19% year over year is this the beginning of a change in trend?
Some talking heads and economist believe that with new home construction this year closing in on record highs that we should conclude that Albertans have apparently opted to simply move into something new rather than renovate.
Once considering other macro-economic factors such as population growth of 115,000 over the past year, the drop off in the price of oil that the began in earnest in late June, along with increasing consumer household debt levels (which exploded by over 40% year over year according to a report by BMO back in August click here) we have difficulty with the “let’s just move into new digs theory” suggested by some as the reason behind the sudden drop in total renovations spending by $420,000,000 over this past summer.
Where we sit here at CASE we conclude that perhaps the change in trend may have more to do with the “tapped out” effect of the consumer than a sudden new found exuberance of Albertan’s, brimming with so much confidence that buying a new home versus renovating suddenly has now become the new “no brainer”.
Allow us one caveat however. We here at CASE are not “trained and schooled economists” in the classical sense but rather simple voracious observers and consumers of economic data and opinion that we then funnel and analyze through our filters of experience and common sense. We are beholden to no one, and provide opinions and conclusions such as (going out on the limb) a simple thing like population growth may very well be the largest primary driver of new residential home construction.
And for you perma-bulls out there, yes we know the most recent (Sept 2014) number of personal bankruptcies continue to decline. We’ve seen them. Don’t be seduced. Keep in mind that bankruptcy filings have always been a bit of a lagging indicator on the true health of the economy. Bankruptcies only happen once a consumer has arrived at the point of complete hopelessness and fully capitulate to the point that things will not get much better any time soon and that they are at a point of no return when it comes to servicing their current debt levels.
Hope truly is the foundation of the resiliency of mankind. We wouldn’t want to see it any other way.