Knock out the wall! Home renos just got cheaper

The red hot housing sector got a little more fuel this week when the Bank of Canada lowered its key interest rate.

New home buyers can finance at a lower rate through a variable mortgage, and home owners can re-finance at a better rate.

But there’s another booming segment of the housing market that will likely get a boost of adrenaline from lower borrowing rates – home renovations.

According to a new study, Canadians spent more money last year fixing up their castles than buying new homes. Some $68 billion was spent on renovations in total, compared with $48 billion spent on new homes, according to Altus Group. The housing industry consultants expect home renovation budgets to grow by three percent this year and another three percent in 2016 thanks in part to lower borrowing rates.

A good chunk of that renovation financing comes from home equity lines of credit, which are offered at a bank’s prime rate. Prime is influenced by the Bank of Canada’s overnight rate.

The theory goes like this: you borrow against the value of your home to increase the value of your home.

Well, that’s the theory. Not all home renovations increase the value of a home. The Appraisal Institute of Canada breaks down how a dollar invested in a home can bring in a return.

Bathroom and kitchen upgrades: 75 to 100 cents on the dollar. Adding a kitchen island returns 65 cents on the dollar, while installing an independent whirlpool bath has a 64 cent return.
A nice paint job, inside or out, yields 67 cents on the dollar.
Energy efficient projects return 61 cents on the dollar but have the added advantage of generating immediate savings. The best returns come from heating system upgrades such as furnaces, windows and insulation.
Hot tubs, swimming pools and skylights have the least impact on resale values. But, at least you can enjoy them.