Raising Prices for Rising Costs

Home Improvement Demand

The increasing cost of homes, low inventory, rising interest rates and people aging in place, keeps the home improvement market moving. Large scale projects stay leading the industry. Homeowners want to upgrade. Seniors are aging in place. They are expanding their kitchens, transforming bathrooms into spas, and making extra room with outdoor kitchens, in-law suites and ADU’s.

Rising Costs
Now is the time to book and complete as much business as possible. Contractors need to pad for inflation, the rising cost-of-doing business and delayed job completion dates. Time is money and not being able to finish projects due to material and labor shortages eats away at profits.

Contractors continue to be challenged with rising materials costs, delayed materials, and labor shortages. In turn to be profitable, home improvement businesses need to increase their prices to cover paying more for materials and labor. Economist Misha Fisher advises contractors to raise their prices. “If I were a remodeler today, I would remember one key principle above any of the other details—if you don’t get the price right, you lose profit.” Fisher explains, “Escalator clauses in your contracts are an important way to protect against it.”

According to the fourth quarter reading of the U.S. Remodeler Index, remodelers raised prices an average of 16% for 2022. More than a third of contractors planned on a 21% increase this year.

Higher priced homes mean an increased demand for higher priced remodels. Larger projects with higher price tags will be easier for homeowners to justify. Smaller projects under $1,500 will start to feel the pinch. The small repair jobs may see business decline when they are forced to raise rates.

Accounting for Inflation
Inflation needs to be considered and watched carefully. In 2021 The U.S. Bureau of Labor and Statistics reported the largest gain in consumer inflation in four decades. The annual inflation rate for the United States was 3.0% for the 12 months ended in June 2023, according to U.S. Labor Department data published on July 12, 2023. All signs point to continued rising home prices. As long as the home values exceed inflation, remodelers will be busy.

Sources: Qualified Remodeler; U.S. Bureau of Labor Statistics: John Burns Real Estate Consulting, and the U.S. Bureau of Labor Statistics