NEW YORK – The slowdown in the housing market is haunting carpenters, landscapers and other small businesses who lost their homes while renovating their properties.
Inflation has caused some homeowners to delay major renovation projects as the cost of building materials, furniture, and fixtures has increased. Lately, high mortgage rates have limited the number of homes for sale.
At the beginning of the year, carpenter Bill Albritton, who owns Albritton Custom Carpentry near Charlotte, NC, since 2004, was already busy months and completing full custom kitchen cabinet replacements in homes in Charlotte’s historic districts. But it has seen 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 21 percent from July a year ago, according to Re/Max’s monthly national housing report.
Albriton was held 30 days earlier, compared to the usual 90 to 160 days. Meanwhile, his expenses have increased by more than 30% across the board. Used plywood jumped from $72 to $140 a sheet around Christmas. It’s back to $85 per sheet, but that’s still higher than before. And it is difficult to find hinges at any price.
Albritton is trying to lead to smaller carpentry jobs.
“Instead of building new kitchens, we’re gearing up to do what we call ‘kitchen facelifts,'” Albritton said. That means just replacing the fronts of the cabinets and drawers and working with a painting contractor to paint the cabinets. “It gives a new kitchen look for a reduced price,” he said.
The Federal Reserve has been raising interest rates broadly in an effort to reduce inflation, which has been running at about 10% per year. The fear is that the Fed will go too far and the economy will go into recession.
“I’m really worried on the heels of the material shortages we’re dealing with,” Albritton said. He is partnering with other home renovation companies as a way to keep his business going.
According to Freddie Mac, the average rate for a 30-year loan is 5.55%. A year ago, the average was 2.87%. The increase is forcing some buyers out of the market, and sales of previously owned homes have fallen for six consecutive months. This is important for businesses involved in home renovations because sellers can spend thousands of dollars to make a home more attractive to buyers, and then buyers will spend thousands more to personalize or renovate their new home.
Homeowner spending on improvements and repairs is expected to decline for the rest of 2022 and the first half of 2023, according to the Future Improvement Program at Harvard University’s Joint Center for Housing Studies. The Center’s leading index of home improvement activity and homeowner improvement and maintenance spending predicts that maintenance spending will grow 17.4% to $431 billion this year. That will drop to 10.1% in the second quarter of next year, with total 2023 spending estimated at $446 billion.
Chris Doyle, CEO and founder of construction finance company Build, says small businesses need to know what’s going on in their market and lean into different types of projects. A small business that previously focused on new home construction, for example, should try working with renovations. And with housing costs on the decline, federal construction projects may also be something to watch.
“Everybody has to adapt,” he said. “Small businesses have the opportunity to adapt faster because they are smarter than large companies.”
Daniel Edwards, franchise owner of Handyman Connection in Hanover, Massachusetts, focuses on smaller jobs costing several thousand dollars, such as decking, replacing windows and doors and carpentry projects. In the greater Boston area, which includes Hanover, home sales fell 20 percent in July. According to Re/Max data, the median price of a home sold was $650,000, down 2 percent from June but up 8 percent from last year.
Edwards said he normally stays at work for three or four weeks, but lately it’s been two to three weeks. Customers are cash-strapped, he says: They want smaller jobs, look at invoices and question the cost of materials. For example, a customer decided to save about $25 instead of paying someone to install the toilet paper holder. Another customer who asked for a quote on a ringworm cleaning decided to quit. But while business is slow, Dip says it’s not as bad as it could be.
“I’m certainly not seeing the normal July and August levels, but I’m not seeing what I fear in terms of a steep decline. People are still looking for small to medium scale projects,” he said.
Inflation has been trying at Tom Monson’s business, Monson Lawn & Landscaping in St. Paul, Minnesota. Prices had to go up – now it costs $62.50 to mow the lawn. From 50 dollars. Sod installation costs $1,250, up from $1,100.
Many valuable customers have declined. One client who planned to plant a new lawn decided to wait until next year, and others reduced biweekly landscaping appointments to monthly.
Curbio is a startup that offers pre-sale renovations that don’t pay until the house is sold. They operate in 52 markets across the country, from Chicago to South Florida. As the housing market slows, they start offering smaller projects.
“As the market starts to cool down in some areas, there’s more exposure to schedules,” said Olivia Mariani, Curbio’s vice president. “Previously, a homeowner might be willing to wait 8 to 12 weeks to completely gut and remodel the kitchen. Now they are asking for the least viable work.”
So instead of doing full renovations, Curbio has started shifting project types to more “refreshing” ones — like painting cabinets or refinishing hardwood floors. The minimum price for projects has dropped to $15,000 and now 30% of projects are under $15,000.
Mariani says Curbio’s data shows that cabinet refinishing can help increase the value of a home just as much as a major job.
“Buyers just want a home that doesn’t need maintenance — a full cabinet makeover isn’t really necessary,” she said.
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