New York (AFP) – A cold is spreading in the housing market, with carpenters, landscapers and other small businesses losing out when fewer homeowners are renovating their properties.
Inflation has already caused some homeowners to delay major renovation projects as prices for building materials, fixtures and appliances have skyrocketed. Recently, high mortgage rates have hampered the number of homes being sold.
At the start of the year, carpenter Bill Albritton, who has owned Albritton Custom Carpentry near Charlotte, North Carolina, since 2004, booked in months in advance and completed a full custom kitchen cabinet replacement in homes in Charlotte’s historic districts. But it has seen a slowdown over the past two months.
In the Charlotte metropolitan area, the number of homes sold fell 19% between June and July, and is down nearly 21% from July last year, according to the National Housing Re/Max Report.
Albritton is booked 30 days in advance, compared to the usual 90 to 160 days. Meanwhile, his costs are up more than 30% across the board. The plywood he uses jumped from $72 to $140 a sheet around Christmas. It’s down to $85 a sheet, but that’s still higher than it was before. And having a hard time finding hinges at any cost.
Albritton is trying to switch to a smaller carpentry business.
“Instead of creating new kitchens, we prepare to do what we call ‘kitchen face lifts,’” Albritton said. That means just replacing the cabinet fronts and drawers and working with a paint contractor to paint the cabinets. It gives a ‘new look to the kitchen for a fraction of the price,’ he said.
The Federal Reserve raised interest rates in an effort to curb inflation, which is approximately 10% annually at the wholesale level. The fear is that the Fed will go too far and the economy will enter a recession.
“I am very concerned in the wake of the material shortages we are now struggling with to consider a very possible recession,” Albritton said. He’s reaching out to other home renovation companies to partner with them as one way to keep the business going.
The average 30-year mortgage rate is 5.55%, according to Freddie Mac. A year ago, the average was 2.87%. The increase is forcing some potential buyers out of the market and sales of previously owned homes have fallen for six consecutive months. This is important for companies involved in home renovations because sellers can spend thousands of dollars to make a home more attractive to buyers, and then buyers spend thousands more to customize or repair their new home.
Growth in homeowner spending on improvements and repairs is expected to slow for the rest of 2022 and the first half of 2023, according to the Remodeling Futures Program at Harvard University’s Joint Center for Housing Studies. The Leading Center Index of Remodeling Activity predicts that homeowner repair and repair spending will grow 17.4% this year to $431 billion. That will slow to 10.1% by the second quarter of next year, with total 2023 spending estimated at $446 billion.
Chris Doyle, CEO and co-founder of Billd, a construction finance company, said small businesses should be aware of what’s happening in their markets and consider focusing on different types of projects. Small businesses that were previously focused on building new homes should try working with restorers instead, for example. And as spending on residential homes is trending down, federal building projects may also be something to consider.
“Everyone will have to adapt,” he said. “Small companies have a chance to adapt faster because they are smarter than big companies.”
Daniel Edwards, who owns the Handyman Connection franchise in Hanover, Massachusetts, focuses on small, multi-thousand-dollar jobs, such as building decks, swapping windows and doors and carpentry projects. In the Greater Boston area that includes Hanover, home sales in July fell 20%. The median home price sold was $650,000, down 2% from June, but up 8% from this time last year, according to Re/Max data.
Edwards said he usually booked three or four weeks with jobs, but recently two to three weeks have gone by. He says clients are tight on money: They want smaller jobs, they want to look at receipts and question the prices of items. For example, one customer decided to install a bathroom tissue holder himself, rather than pay someone to do it, saving about $25, he said. Another customer decided to ask for a quote for drain cleaning to defer. But while the business has been slower, he says the decline isn’t as bad as he feared it might be.
“I certainly don’t see the normal levels for July and August, but I don’t see what I was afraid of in terms of a major pullback. People still want small to medium sized projects.
Inflation was trying to do at Tom Monson’s business, Monson Lawn & Landscaping, in St. Paul, Minnesota. He had to raise the prices – he now charges $62.50 to mow the lawn. Up from $50. The sod installation costs $1,250, up from $1,100.
It has lowered the most price-sensitive customers. One client who was planning to put in a new lawn decided to wait until next year, and others reduced their bi-monthly landscaping appointments to monthly appointments.
Curbio is a startup that offers pre-sale renovations to homes that don’t charge a fee until the home is sold. It operates in 52 markets across the country, from Chicago to South Florida. They’ve also started offering smaller projects as the housing market slows.
“With the market starting to cool in some areas, there is a much greater sensitivity to timelines,” said Olivia Mariani, vice president at Corpio. “Previously, a homeowner would have been willing to wait 8 to 12 weeks to be able to completely remodel their kitchen. Now, they are asking for minimal viable work.”
So instead of doing a full renovation, Curbio started turning project types into more “upgrades” — like painting cabinets or refinishing wood floors. She has dropped the previous lowest price of $15,000 for projects and now 30% of her projects are under $15,000.
Mariani said Corbeo’s data shows that a Treasury update can help raise the price of a home for sale just as much as a bigger job.
“Buyers just want a home that doesn’t need maintenance – a complete closet remodel isn’t really necessary,” she said.