NEW YORK — The cooling housing market is impacting carpenters, landscapers and other small businesses who lose out when fewer homeowners renovate their properties.
Inflation was already forcing some homeowners to delay major renovation projects due to soaring prices for building materials, light fixtures and appliances. More recently, rising mortgage rates have dampened the number of homes sold.
Earlier this year carpenter Bill Albritton, owner of Albritton Custom Carpentry near Charlotte, North Carolina since 2004, was booked months in advance and completed full kitchen cabinet replacements made to measure in homes in Charlotte’s historic neighborhoods. But it has seen a downturn over the past two months.
In the Charlotte metropolitan area, the number of homes sold fell 19% between June and July, and about 21% from July a year ago, according to Re/Max’s National Monthly Housing Report. .
Albritton is booked 30 days in advance, compared to the usual 90-160 days. Meanwhile, its costs have increased by more than 30% across the board. The plywood he uses went from $72 to $140 a sheet around Christmas. It’s back down to $85 a sheet, but it’s still higher than before. And he struggles to find hinges at all costs.
Albritton is trying to move into smaller carpentry jobs.
“Instead of doing new kitchens, we’re gearing up to do what we call ‘kitchen facelifts,'” Albritton said. This simply means replacing the cabinet and drawer fronts and teaming up with a painting contractor to paint the cabinets. It gives “a new kitchen look for a fraction of the price,” he said.
The Federal Reserve has raised interest rates in an effort to reduce inflation, which is running at nearly 10% a year at the wholesale level. The fear is that the Fed will go too far and the economy will collapse.
“I’m very concerned following the material shortages that we’ve been battling to now look at a very possible recession,” Albritton said. He is reaching out to other home improvement companies to partner with in order to continue the work.
The average 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 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 their new home or fix it.
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 center’s renovation activity leading indicator forecasts homeowners’ spending on improvements and repairs 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 should be aware of what’s happening in their market and consider different types of projects. A small business that previously focused on building new homes should instead try working with renovators, for example. And since residential spending is expected to decline, federal construction projects might also be something to look at.
“Everyone is going to have to adapt,” he said. “Small businesses have the ability to adapt faster because they are more agile than larger businesses.”
Daniel Edwards, who owns a Handyman Connection franchise in Hanover, Mass., focuses on small, multi-thousand dollar jobs like building decks, swapping windows and doors, and carpentry projects. In the greater Boston area that includes Hanover, July home sales were down 20%. The median price of a home sold was $650,000, down 2% from June but up 8% from the same time last year, according to data from Re/Max.
Edwards said he normally books three or four weeks with jobs, but lately it’s been two to three weeks. He says customers are tighter with money: they want smaller jobs, want to look at receipts and question the price of materials. For example, one customer decided to install a toilet paper holder himself, rather than paying someone to do it, saving about $25, he said. Another customer who requested a quote for a gutter cleaning decided to wait. But although business has been slower, he says the drop is not as bad as he feared.
“I certainly don’t see the normal July and August levels, but I don’t see what I feared in terms of a significant drop. People always want small to medium-sized projects,” he said.
Inflation tried Tom Monson’s business, Monson Lawn & Landscaping, in St. Paul, Minnesota. He had to raise prices – he now charges $62.50 to mow a lawn, up from $50 before. A sod installation costs $1,250, up from $1,100 previously.
More price-sensitive customers reduced their spending. One client planning to install a new lawn has decided to wait until next year, and others have reduced their bi-weekly landscaping appointments to monthly appointments.
Curbio is a startup that offers pre-sale renovations on homes 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 to offer smaller projects as the housing market slows down.
“As the market is starting to cool in some regions, there is a lot more sensitivity to delays,” said Olivia Mariani, Vice President of Curbio. “Previously, a homeowner might be willing to wait 8-12 weeks to completely gut and remodel their kitchen. Now they are asking for minimum viable work.
So, instead of doing a full renovation, Curbio started shifting the project types to more “refresh” — like painting cabinets or refinishing hardwood floors. It has lowered its previous minimum price of $15,000 for projects and now 30% of its projects are below $15,000.
Mariani said data from Curbio shows that a cabinet refresh can help raise the price of a home for sale just as much as a bigger job.
“Buyers just want a home that’s maintenance-free — a complete cabinet overhaul isn’t really necessary,” she said.