Raising Remodeling Costs and Prices
Home Improvement Surge
The COVID-19 pandemic caused a boom in home improvement. Homeowners focused on home improvements for immediate needs while staying at home and future needs for the long run.
The rising cost for homes, low inventory, low interest rates and staycationers, continue to fuel the home improvement market. 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.
How to Combat Inflation
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 intended to raise 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.
Book Projects
Inflation is real and 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. So far signs point to continued rising home prices. As long as the home values exceed inflation, remodelers can make hay.