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If you were planning on using the government’s Home Renovation Tax Credit, you’ve unfortunately missed your chance: the program ended at the beginning of February. However, now that is over, we are starting to get an idea of how it affected the real estate industry.
A recent report released by the Toronto-Dominion Bank tries to do just that. It argues that the tax credit did encourage people to renovate, and helped boost the economy. Diana Petramala, the author of the report, estimates that the credit encouraged $4 billion to be spent on renovations.
However, the bad news is that most of the money spent was from loans. Petramala says, “We believe that the stimulus measure likely borrowed $3-billion of demand from the future.”
This is bad news, because it suggests that demand from these consumers might be weaker in the near future as they try to recover from their debts. There will be some lingering benefits from the renovation spending – these projects will likely push up activity throughout 2010. But as Petramala notes, “the pace of growth will diminish over the course of the year and into 2011 as payback from the tax credit occurs.” This will have a dampening effect on Canada’s economic recovery.
Even more worrying is the fact that interest rates are expected to rise. If many of the home renovators are putting these expenses on credit card debt, rising interest rates could really knock consumption. And we’re deep in debt. In 2009, home indebtedness reached the historical high of 140% of income.
As well, these renovations might be encouraging the recent upswing in the housing market. If householders are going into debt to pay for renovations, they might feel they need to sell quickly in order to dig themselves out of credit card debt.
Nevertheless, we shouldn’t get too upset about these sorts of analysis. It’s always difficult to predict what the market will be like next month, let alone a year from now. In the end, what matters is not whether most people have wracked up large credit card debts – the problem is whether you have. Try to keep your spending in line, and let the future take care of itself!
Nelson Goulart
Broker of Record with Signature Service GMAC Real Estate
www.ssgmac.ca
