NEW YORK — The cooling housing market has carpenters, landscapers and other small businesses losing out as fewer homeowners renovate their properties.
Inflation was already causing some homeowners to delay major renovation projects as prices for building materials, fixtures and appliances soared. Recently, higher mortgage rates have reduced the number of homes sold.
At the beginning of the year, carpenter Bill Albritton, who has owned Albritton Custom Carpentry near Charlotte, North Carolina, since 2004, was booked months in advance and was completing full custom kitchen cabinet replacements in homes in Charlotte’s historic neighborhoods. But he has noticed a slowdown in the past two months.
In the Charlotte metropolitan area, the number of homes sold fell 19 percent between June and July and were down about 21 percent from last July, according to Re/Max’s monthly national housing report.
Albritton is booked 30 days in advance, compared to the usual 90 to 160 days. Meanwhile, its costs have increased by more than 30% across the board. The plywood he uses jumped from $72 to $140 a sheet around Christmas. It went back up to $85 a sheet, but that’s still higher than before. And he has trouble finding hinges at any price.
Albritton is trying to focus on smaller carpentry jobs.
“Instead of doing new kitchens, we’re gearing up to do what we call a ‘kitchen facelift,'” Albritton said. This means simply replacing the cabinet and drawer fronts and teaming up with a painting contractor to paint the cabinets. It gives “a new look to the kitchen for a fraction of the cost,” he said.
The Federal Reserve is raising interest rates in an effort to reduce inflation, which is running at nearly 10% a year wholesale. The fear is that the Fed will go too far and the economy will fall into recession.
“I’m very concerned because of the material shortages that we’ve been fighting to now see a very possible recession,” Albritton said. He is reaching out to other home improvement companies to partner with as one way to keep the business going.
The average interest rate on a 30-year mortgage 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 straight months. This matters to the home improvement business because sellers can spend thousands of dollars to make a house more attractive to buyers, and then buyers spend thousands more customizing or renovating their new home.
Growth in homeowner spending on improvements and repairs is expected to slow through late 2022 and the first half of 2023, according to the Future of Remodeling Program at Harvard University’s Joint Center for Housing Studies. The Center’s leading indicator of remodeling activity predicts improvement in homeownership and repair spending Repair spending will rise 17.4% this year to $431 billion. This will slow to 10.1% by the second quarter of next year, with total spending for 2023 estimated at $446 billion.
Chris Doyle, CEO and co-founder of Billd, a construction finance company, said small businesses need to be aware of what’s happening in their market and consider targeting different types of projects. A small business previously focused on new home construction should try working with renovators, for example. And since residential housing costs will decrease, federal construction projects may also be something to consider.
“Everyone will have to adapt,” he said. “Small businesses have the ability to adapt more quickly because they are more nimble than larger companies.”
Daniel Edwards, who owns a Handyman Connection franchise in Hanover, Mass., focuses on small jobs that cost a few thousand dollars, such as building decks, replacing windows and doors, and carpentry projects. In the greater Boston area, which includes Hanover, home sales were down 20% in July. The median price of a home sold was $650,000, down 2 percent from June but up 8 percent from this time last year, according to data from Re/Max.
Edwards said he usually booked work for three or four weeks, but lately it’s been two to three weeks. He says customers are more cash-strapped: They want smaller jobs, want to look at receipts and question the cost of materials. For example, one customer decided to install a toilet paper holder himself instead of paying someone to do it, saving about $25, he said. Another customer who requested a gutter cleaning quote decided to postpone. But even though business is slower, he says the downturn isn’t as bad as he worried it might be.
“I certainly don’t see normal levels for July and August, but I don’t see what I feared in terms of a significant decline.” People still want small to medium projects,” he said.
Inflation is trying to hit Tom Monson’s business, Monson Lawn & Landscaping, in St. Paul, Minnesota. He had to raise his prices – now he charges $62.50 to mow the lawn. from $50. Sod installation costs $1,250, down from $1,100.
More price-sensitive customers cut back. One client who was planning to put in a new lawn decided to wait until next year, and others reduced landscaping appointments from fortnightly to monthly.
Curbio is a startup that provides pre-sale home renovations that it doesn’t charge for until the home is sold. They operate in 52 markets across the country, from Chicago to South Florida. They have also started offering smaller projects as the housing market slows.
“As the market starts to cool in some areas, there’s a lot more time sensitivity,” said Olivia Mariani, vice president of Curbio. “Previously, a homeowner might be willing to wait eight to 12 weeks to completely gut and remodel their kitchen. Now they want the minimum viable job.
So instead of doing a complete renovation, Curbio started shifting project types to more “refreshers”—like painting cabinets or refinishing hardwood floors. He lowered his previous minimum price of $15,000 for projects and now 30% of his projects are under $15,000.
Mariani said Curbio’s data shows that a cabinet update can help boost a home’s resale value just as much as a major job.
“Buyers just want a low-maintenance home — a complete cabinet overhaul isn’t really necessary,” she said.
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