Qualified Remodeler Magazine

OCT 2018

Qualified Remodeler helps independent remodeling firms to survive, become more professional and more profitable by providing must-have business information, namely best business practices, new product information and timely design ideas.

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Rising interest rates After nearly a decade of cheap money, the Federal Reserve has begun raising interest rates. NAR's Yun says his forecasts include two more rounds of rate hikes yet in 2018, followed by two or three more rounds in 2019. Current 30-year €xed mortgage rates are 4.5 percent, which is very low historically, but many owners took advantage of rates near 3 percent over the last decade, as previously discussed. In addi- tion, higher rates further limit the number of people who can enter the housing market with its rising prices in general. Overall, the outlook for remodeling and home improvement looks strong for the fore- seeable future, but the picture is nuanced and complicated. For example, the boom in rental improvements, driven by a spike in multi- family developments around the country, has slowed. ‡e market is shifting, experts say, to owner remodeling where big projects will continue strong over the short term and then, over time, will pivot to a market driven by smaller projects. "We're de€nitely seeing certain segments like rental big project spending clearly slow- ing," Tomalak explains. "‡ere are very diŽer- ent stories depending on segment. Big project improvements for owners are still doing great, and we're anticipating that's going to con- tinue, as well as small project improvements for owners. ‡en as we get later in this cycle, we're going to see a pivot towards more small project spending." | San Francisco, Los Angeles, Boston, New York, Miami and Washington, D.C. "I think that's a trend we've been seeing for quite a while," Harvard's Baker notes. "Average incomes are not keeping up with average house prices, and that's creating a serious aŽordability issue." A new housing bill introduced in Congress last month tries to address the growing aŽord- ability issues in the country, which in eŽect locks out many younger potential buyers from entering the market. ‡e NAHB voiced sup- port for parts of the bill, and only time will tell if the issue gets addressed. price of lumber is up more than 50 percent, according to Random Lengths, a website that tracks lumber prices. In addition, new tar- iŽs on imported steel, cabinets and other re- modeling products are pushing prices higher. Remodelers have no choice but to pass those costs along to their customers. So far it has not impacted the demand for services, but over time that may change. Reduction in property-tax deductions ‡e 2017 tax-reform bill capped the dollar amount that can be deducted for state and local taxes (SALT) at $10,000. Most places around the United States charge property taxes on homes well below this level, so the impact was felt in big cities and big city sub- urban areas—like Boston, Washington, D.C., San Francisco and Chicago. Homeowners in high-tax states like Connecticut, New Jersey and New York were hard hit by this new cap. For some homeowners, their perception of future returns on discretionary remodeling activity is now diminished and the tax law is therefore a nascent drag on remodeling. %åÏĬĜĺĜĺč±ýŅųÚ±ÆĜĬĜƋƼ Yun from NAR cites statistics showing that, while home prices have appreciated 45 percent in the aggregate over the past several years, real incomes have risen only 15 percent. ‡is means the gap between what potential home- buyers can aŽord is getting wider, particularly in fast-rising property value areas like Seattle, Remodeling activity varies greatly by region. The remodeling markets in the Northeast and Midwest represent the lion's share of overall activity and are growing at a robust rate. (Note: excludes weather-related repair spending) ŅƚųÏå×IŅĘĺƚųĺŸå±Ĭ)ŸƋ±ƋåŅĺŸƚĬƋĜĺčØXXŠ{ƚÆ×eƚčěŏîš Remodeler payrolls are rising, adding pressure to a skilled labor shortage. Source: John Burns Real Estate Consulting, LLC Š%±Ƌ±×a±ųÏĘěŏîØ{ƚÆ×eƚčţěŏîš The shortage of skilled labor is impacting hourly wages, which are on the rise. ŅƚųÏå×XŠ%±Ƌ±×IƚĺåěŏîØƚŞÚ±ƋåÚŧƚ±ųƋåųĬƼØ{ƚÆ×eƚčţěŏîš ƗljŏîkeX)ak%)X{)c%Fc:Škc)ec%)ceXš âFXXFkcŠ¥k¥Ţ:kBš Northeast Midwest Southeast Texas Southwest Northwest Southern California Northern California Northern Florida Southern Florida $80B ( 6.4% ) $70B ( 9.7% ) $53B ( 9.1% ) $39B ( 11.5% ) $22B ( 11.5% ) $22B ( 11.2% ) $22B ( 8.8% ) $19B ( 10.1% ) $9B ( 10.7% ) $9B ( 10.0% ) TOTAL EMPLOYMENT: U.S. RESIDENTIAL REMODELERS kXXFc:ŏƗěakcBe)e:)Øce Total (left axis) YOY % Change (right axis) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 $350K $330K $310K $290K $270K $250K $230K $210K $190K $170K $150K 15% 10% 5% 0% -5% -10% -15% CONSTRUCTION CONTRACTOR HOURLY WAGES ¥k¥ŢBec:)ŠƑěakcBe)e:)š Painting & Wall Covering Flooring Siding Framing Residential Building Masonry Drywall & Insulation Plumbing & HVAC Electrical 7.8% 7.6% 7.3% 7.1% 6.2% 5.7% 5.6% 3.6% 2.2% EXCLUSIVE REPORT: Remodeling Market Outlook 28 October 2018 QR QualifiedRemodeler.com

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