Will the construction industry be able to keep up with the home remodeling boom?
With all of last year’s turmoil, few people expected the home remodeling industry to grow almost 6% from the previous year.
2019 was a banner year in itself with $383 billion in construction, and 2020 is anticipated to reach $405 billion.
Four factors have spurred the growth:
- Accelerated new home prices
- Low inventory of for-sale existing homes
- Wide spread desire to get out of urban areas
- Low interest rates by the Fed
The spring 2020 economic uncertainty led to consumers of all ages and demographics desiring home renovations.
At the same time, one demographic factor is the transition of boomers and older homeowners out of their existing residence into smaller accommodations.
Potentially 11 million homeowners will be moving on or out, while 15 million younger households will be scratching for homes.
Interestingly, younger home buyers, given the choice of a condominium or an existing fixer-upper, are more apt to pursue the latter and plunge into remodeling.
Up to 40% of the kitchen and bath renovations are done by millennials and Gen-Xers. This is not news to most real estate agents today. With the current high cost of obtaining the tarnished American dream of new home ownership, young buyers are kicking the tires, or aluminum siding, for shelter.
According to the Harvard Research’s analysis of the leading indicator of remodeling activity, or LIRA, expect slower growth in 2021 but 2% quarter-over-quarter increases.
The remodeling industry had doubled in 10 years. While new home sales are strong, they are still outside the reach of many younger households
Naturally, every region is different.
The North Bay has had an enormous amount of fire replacement and earthquake repairs that are still happening. Small repairs and basic one item improvements, such as new flooring, takes a different track than larger projects requiring multiple technicians and skills. Whenever multi-tasked renovations occur, the time lines and the construction costs escalate.
At the same time, construction materials prices have exploded, and the supply lines are faltering.
Lumber has exploded 55%–63% in some areas. The timelines for construction have telescoped 20%: A project that should have taken four months is taking five months or longer.
What the market is still anxiously looking for is if COVID-19 will permanently affect our spending habits.
An important milestone in determining if a remodeling is needed is the age of the last renovation. As a general rule, 16-20 years is the life expectancy of a remodel.
As the finishes and sustainability disappears, the desire to catch up with the latest looks, materials and finishes start to wear through. The appetite to renovate one’s home is greater among younger households who are more media savvy and aware of latest trends.
One of the biggest challenges will be finding professional contractors and subcontractors.
Many small contractors have fallen on hard times and are not coming back. The Paycheck Protection Program from the CARES ACT helped 83,036 remodelers and subcontractors with their payroll obligations, but there’s no assurance that they will be back.
It becomes an open question on how many remodelers and professionals will be able to survive into 2021 with the continuing market uncertainties that include longer construction times and disrupted supply chains.
It would appear that the smaller contractors and professionals will be leaving while only long-term well-capitalized businesses with a steady source of skilled labor will survive.
Construction and renovation have been the first industrial sectors to emerge in every economic downturn or recession since World War ll.
Small builders and contractors represent the vast majority of America’s home building and remodeling industries, not big corporations. These are the businesses that will generate the jobs and raise the overall living standards in this country.
Not the government, not the unions and certainly not the retail business importing cheap goods to sell out of big box stores or deliver to your door. The home building and renovation industry is the main engine that will take the US out of this economic quagmire.
So, tell me this: Why are kitchens getting humongous and people cooking less? Why have a huge kitchen island to eat your DoorDash delivery?