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Fred Lum/Fred Lum/The Globe and Mail

Canada's "phenomenal housing rebound" will set the stage for a recovery in the home-renovation sector, National Bank analyst Jim Durran said in a research note Wednesday.

While home-owners remain conservative when it comes to big-ticket purchases, they are poised to spend more on improving their properties, "especially with the assistance of government renovation tax credits, which have finally started to gain some headway supported by a recent advertising push," Mr. Durran said.

"Resale activity has been up on a year-over-year basis for June, July and August, and the year-over-year rate of decline in housing starts has begun to moderate," he said.

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Because of the stronger-than-expected real estate recovery, Mr. Durran said he has increased his earnings estimate for home-improvement retailer Rona Inc. to $1.13 a share for fiscal 2009 from his earlier estimate of $1.08.

Rona earned $1.44 a share in 2008 but, like other retailers, was hammered by the recession.

"According to a 2007 industry study, the average housing transaction generates $15,000 of renovation spending, $6,525 of furniture and appliance purchases and $2,025 of general household purchases," Mr. Durran said.

As the economy recovers, renovation spending is expected to be more muted than it was pre-recession, he said. Still, the increased activity will "be helpful" to Rona and other home-improvement retailers.

Rona, Canada's second-largest home-improvement retailer with an estimated 15 per cent share of the national market, is scheduled to report its third-quarter results on Nov. 10.

"We are expecting to see some trend improvement due to housing activity and renovation tax credits."

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