The home renovations market in Australia was worth over $30 billion during the 2015/16 financial year. While we are currently enjoying the largest and longest upturn in new home building activity, it’s important to note the market wilted for a two-year period between 2011 and 2013 before it started to slowly recover.
When comparing new home building and renovations activity, it is interesting how these two segments of residential building may respond differently to changes in the operating environment. What we’ve seen in the past five years suggests that new home building responds much more quickly to interest rate reductions than renovations demand. But it seems things are starting to change.
The June 2016 quarter shows an accelerated recovery pace for home renovations. Volume of home renovation activity rose by 3.5 per cent during the June 2016 quarter, or an increase of 4.4 per cent on the same period 12 months earlier. During the year to June 2016, renovations activity is estimated to have added up to $30.93 billion, 4.6 per cent higher than the previous year.
It’s accepted that this market recovery is a response to the increase of dwelling price in areas like Sydney and Melbourne over the recent past. Higher housing prices have allowed homeowners to finance renovations with relatively low-cost home equity loans.
Strong home prices also have the effect of boosting household confidence, making homeowners more comfortable in engaging in large expenditures like home renovations. Also, as house prices reach new highs, the cost of moving becomes prohibit for many families, who choose to instead invest in home renovations.
Renovations activity increased by 4.7 per cent in 2015In 2016, that activity is projected to grow another 3 per cent, and then slowing down to to 1.4 per cent in 2017. Growth is forecast to speed back up to 2.4 per cent in 2018 with another 2.4 per cent surge expected for 2019.
The volume of renovations activity is expected to grow from $31.38 billion in 2016 to $33.37 billion in 2019, an expansion of 6.3 per cent overall.
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