The pandemic has had an enormous effect on the economy, and its influence has now extended into a very common homeowner practice.
Remodeling.
If you're considering remodeling your home any time soon, you should be aware of how the current economic environment is going to affect your projects.
Starting off, you should know that…
COVID-19 Has Made It Expensive and Extensive
Soon after the pandemic began, remodeling projects saw an enormous increase in their average costs and completion times. This was a reality I faced personally during my own remodeling projects.
According to a True Cost Report put out by Angi Incorporated, the vast majority of home remodeling projects saw inflated prices. In 2020, it was found that:
- The three most popular projects in 2020 were bathroom remodels, new flooring, and interior painting. All of these saw costs increase, but bathroom remodels were the most significant with an increase over 10%. [1]
- Creating a home office became a popular project with the new work-from-home norms. Costs for such projects rose 10%. [1]
- Housing additions, cabinetry, and closet projects saw the most staggering price increases compared to 2019. Their prices increased 49%, 38%, and 30% respectively. [1]
And these price increases aren't showing signs of reversing'
It's also not just project costs that are increasing. So are the time frames. Remodeling projects were notorious for going over estimated deadlines well before the pandemic, but current trends have only amplified the issue.
What current trends'
1. Home Supply Can?t Keep Pace With Demand
We've also explored the effects the pandemic has had on the real estate market as a whole. One key trend found was that a new flood of home buyers has started to greatly outpace the number of home sellers. This helped create a seller's market, and drive up home prices. This is also playing a role in increasing the time it takes to get a remodeling project done presently.
Why's that'
With a red hot real estate market, sellers can see remodeling as a way to command an even higher price for their property. And buyers, who have just spent more than they hoped for on a home, see a remodeling project as necessary to make it more their own.
Additionally, those not looking to buy or sell their property can be inclined to undertake remodeling projects. With the new working-from-home normalities, and more time spent in the house, renovations are seen as all the more pressing.
This creates an impossible demand for laborers to keep up with. They're rapidly attempting to build houses and remodel them with materials being demanded by everyone at once.This translates to heavy project delays and backlogs.
But if they hired more laborers, wouldn't that speed things up'
That's also an issue right now.
2. Labor Supply Can?t Keep Pace With Demand
To make matters worse for remodeling costs and deadlines, skilled labor shortages have also been a key issue. Not only are contractors struggling to keep up with the work demanded, but they're also struggling to keep up with the workers needed.
Contrary to many businesses, the skilled-trade industry experienced growth every month during the pandemic. [2] Professionals like electricians, plumbers, painters, and carpenters are needed now more than ever. But there's been difficulty in closing the gap. In fact:
- PeapleReady’s Skilled Trades performed an analysis that found that job postings for skilled trade professionals were up 50% compared to pre-pandemic levels. [2]
- They also found that between January and August of this year, the demand for specific trade professionals rose dramatically. For carpenters and painters the demand increased over 300%. For electricians, skilled construction workers, and welders it was over 200%. And plumbers saw an increase of over 100%. [3]
One way of attracting more skilled-laborers will be through higher compensation. And if companies are having to pay their workers more, many will expect their customers (i.e. you) to be paying more as well. Even if you are able to find the right workers to do your renovations quickly, you'll still face another major issue.
Namely…
3. Material Supply Can?t Keep Pace With Demand
With the demand for remodeling projects through the roof, home builder supplies have been flying off the shelves. And like their laborer counterparts, the supply isn't able to keep up. As a result prices for vital materials at nearly every stage in the homebuilding process have increased dramatically.
The cost increase in key homebuilding materials was detailed by Bloomberg. Its findings detailed the dramatic shift in construction costs from 2019 to 2021, which shows just how impactful the pandemic has been on home construction. It found that:
- The price per ton for copper has increased 66% between January, 2020 and May, 2021. [4]
- The price per 1,000 board feet of lumber has increased 228% from January, 2020 to May, 2021. [4]
- The cost of concrete and cement has risen from 176.7 to 183.6 along on the producer price index between January, 2020 and April, 2021. [4]
These critical materials are instrumental in new home construction. And it's important to realize their costs can easily spill over onto your remodeling projects. You may not be using lumber to frame a new house, but if you're looking to build a deck, start saving. And if you're looking to refurbish your kitchen or bathroom or update electrical or plumbing aspects, start saving more.
We at Crafted Finance help our clients consider these ever-fluctuating costs, and devise plans to budget for them. Contact us here.
And you should know it's not just the demand that's driving these price spikes…
4. Governmental Policies Are Also Holding Up Costs
Governmental policies from the past have laid the groundwork for some of the increasing remodeling costs we're seeing today. Namely in the form of tariffs, which function as taxes on the importation of non-domestic goods. And right now, there are two key locations with tariffs on them that are impacting remodeling projects'
China and Canada.
Here's a breakdown of what's happening:
- It’s been estimated that over a quarter of the lumber consumed in the U.S. comes from Canada. And back in 2017, the Trump administration increased the tariff on Canadian lumber to 20%. However, it was decreased to 9% in 2020 after the pandemic started impacting the economy. [5]
- Despite record-high costs of lumber, there hasn?t been a reduction of the Canadian tariff. In fact, there?s actually a potential for it to double under the Biden administration. Earlier this year a report from the U.S. Commerce Department found that it may be necessary to increase the tariff to 18% to fight against unfair Canadian trade practices. [5]
- The Trump administration placed steep tariffs on a variety of imported goods from China. Two major ones that continue to impact remodeling costs today are aluminum and steel. The tariffs on these Chinese imports are presently 10% and 25% respectively. [6]
- The Biden administration is approaching the tariffs on China in a similar way they?re approaching the one on Canada. While there hasn?t been a call to dramatically raise them, there?s been no action to reduce them either. The administration has again seen upholding them as a way to combat trade practices deemed unfair. [7]
The Bottom Line
The pandemic had an enormous impact on remodeling projects. It sent both their costs and timelines for completion soaring.
The inability for the supplies of homes, labor, and materials to keep up with demand were major drivers of this. But so were pre-existing tariffs on Chinese and Canadian goods that have yet to be reduced or eliminated.
We at Crafted Finance are devoted to helping our clients navigate these unpredictable times. And when it comes to your remodeling projects, we've got you covered from start to finish. Reach out to us at 650-336-0598 or fill out a contact card here, and we'll reach out to you.
References
1.https://www.angi.com/research/reports/true-cost/
4.https://www.bloomberg.com/graphics/2021-us-housing-construction-costs/
5.https://fortune.com/2021/05/29/lumber-prices-canada-wood-tariffs-homebuilding-costs/
6.https://www.politico.com/news/2021/06/09/steel-tariffs-europe-biden-492211
