Small Businesses Feel the Pinch From Slowing Housing Market
NEW YORK — The chill in the housing market is rippling out to the carpenters, landscapers and other small businesses that lose out when fewer homeowners are renovating their properties.
Some homeowners were already having to put off large renovations due to inflation. As prices rose for fixtures, building materials and appliances, some homeowners had to wait. Recent increases in mortgage rates have hampered the sale of many homes.
Bill Albritton was booked several months ahead to replace kitchen cabinets in Charlotte homes. But he’s seen a slowdown over the past two months.
The number of homes sold in Charlotte fell by 19% between June & July and is down approximately 21% compared to July last year, according the monthly Re/Max National Housing Report.
Albritton’s booking is made 30 days before the event, instead of 90 to 160 days. His costs have risen by over 30% in the meantime. The cost of the plywood that he uses has risen from $72 to $140 per sheets around Christmas. It has gone back down to $85 a sheet, but that’s still higher than it used to be. It is difficult to find hinges of any value.
Albritton is looking to shift to smaller jobs in carpentry.
“Instead of doing new kitchens we’re gearing up to do what we call ‘kitchen face lifts,’” Albritton said. It means replacing drawers and fronts, and working with a painter to paint cabinets. It gives “a new kitchen look for a fraction of the price,” he said.
In an attempt to lower inflation, the Federal Reserve raised interest rates. The wholesale rate is now at nearly 10% per year. Fear is that the Fed might go too far and cause a recession.
“I am very worried on the heels of the material shortages we have been battling to now look at a very possible recession,” Albritton said. He’s reaching out to other home renovation companies to partner with as one way to keep the work coming.
According to Freddie Mac the average interest rate for a 30-year mortgage loan is 5.55%. The average rate was 2.877% a year ago. Some buyers are leaving the market due to this increase, while sales of homes previously owned fell for six consecutive months. The businesses that specialize in home renovations understand this. Sellers can spend thousands to make their house more desirable to buyers. Buyers then spend thousands to personalize or fix up their new home.
The Remodeling Futures Program, Harvard University Joint Center for Housing Studies predicts that homeowner spending for repair and improvement will slow in the second half of 2022 as well as the third quarter of 2023. The center’s Leading Indicator of Remodeling Activity predicts homeowner improvement and repair spending repair spending will grow 17.4% this year to $431 billion. The pace of spending will fall to 10.1% during the second quarter, and total 2023 spending will be $446 billion.
Chris Doyle, CEO and co-founder of Billd, a construction finance company, said small businesses should be aware of what’s going on in their market and consider pivoting to different types of projects. If a small business was originally focused on building new homes, it might be a good idea to start working with renovators. You might also consider federal projects, which could be worth looking into as the residential home spend is on the decline.
“Everyone’s going to have to adapt,” he said. “Small businesses have an opportunity to adapt quicker since they’re more nimble than bigger companies.”
Daniel Edwards is the owner of a Handyman Connection franchise located in Hanover. He focuses his efforts on smaller jobs, which can cost several thousand dollars. These include building decks and swapping windows and doors. The July home sales were 20% lower in the Greater Boston Area, which includes Hanover. Re/Max data showed that the median sale price for a house was $650,000. That’s 2% lower than June and 8% higher than last year.
Edwards said he’s normally booked out three or four weeks with jobs, but lately it’s been two to three weeks. According to Edwards, customers are becoming more careful with their finances. Customers want to do smaller jobs, look at receipts and ask about the prices of materials. He said that a customer chose to install his own toilet paper holder, instead of paying someone to do it. This saved them about $25. One customer, who wanted a quote to clean their gutters decided not too fast. But while business has been slower, he says the dip isn’t as bad as he was worried it might be.
“I certainly don’t see normal July and August levels, but I don’t see what I had feared in terms of significant decline. People still want small- to mid-sized projects,” he said.
Inflation has been trying on Tom Monson’s business, Monson Lawn & Landscaping, in St. Paul, Minnesota. He’s had to raise prices — he now charges $62.50 to mow a lawn. Prices have risen from $50 Installation of sod costs approximately $1,250.
Customers who are more price sensitive have had to cut down. A customer that was originally planning to install a lawn this year decided to put it off until next year. Others have reduced their biweekly appointments for landscaping to monthly.
Curbio is a startup that provides pre-sale renovations on homes that it doesn’t charge for until the home is sold. The company operates in 52 cities across the United States, including Chicago and South Florida. They’ve also started offering smaller projects as the housing market slows.
“As the market starts to cool in some areas, there’s much more sensitivity to timelines,” said Olivia Mariani, vice president at Curbio. “Before, a homeowner may be willing to wait 8 to 12 weeks to fully gut and remodel their kitchen. Now, they’re asking for the minimum viable work.”
So instead of doing a full renovation, Curbio has begun shifting project types to more “refreshes” – like painting cabinets or refinishing hardwood floors. The previous $15,000 minimum cost for projects was dropped and 30% of the projects it has completed are below $15,000.
Mariani said Curbio’s data 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 doesn’t require maintenance — a full cabinet redo is not really necessary,” she said.
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