Small Businesses Feel the Pinch From Slowing Housing Market
NEW YORK — The chill in the housing market is hitting carpenters, landscapers and other small businesses that are hurting as fewer and fewer homeowners renovate their properties.
Inflation has caused some homeowners to delay major renovation projects due to rising prices for building materials, fixtures and appliances. More recently, higher mortgage rates have dampened the number of home sales.
Earlier this year, Bill Albritton, a carpenter who has owned the Albritton Custom Carpentry near Charlotte, NC since 2004, booked months in advance and completed a full custom kitchen cabinet replacement in the Charlotte Historic District home. But over the past two months, he has seen a slowdown.
In the Charlotte metro area, the number of homes sold between June and July fell 19 percent, according to Re/Max’s monthly national housing report, and is down about 21 percent from last July.
Albritton books 30 days in advance, compared to the usual 90 to 160 days. Meanwhile, his costs have risen by more than 30% across the board. The plywood he used went from $72 to $140 around Christmas. It has dropped back to $85 a piece, but that’s still higher than before. And it’s hard for him to find the hinge at any cost.
Albritton is trying to switch to smaller carpentry jobs.
“Instead of doing a new kitchen, we’re going to do what we call a ‘kitchen facelift,'” Albritton said. This means simply replacing the fronts of the cabinets and drawers and working with a paint contractor to paint the cabinets. He said it offered “a whole new look in the kitchen” at “a fraction of the price”.
The Fed has been raising interest rates to reduce inflation, which at the wholesale level is approaching 10% per year. There are fears that the Fed will go too far and the economy will be in a downturn.
“After the shortage of materials that we’ve been working on, I’m very concerned that a recession is now looking likely,” said Albritton, who is working with other home improvement companies as a way to keep things running smoothly .
According to Freddie Mac, the average interest rate on a 30-year mortgage is 5.55%. A year ago, the average was 2.87%. The increase has forced some would-be buyers out of the market, with second-home sales falling for six straight months. This is important for businesses involved in home improvement, because sellers can spend thousands of dollars to make a house more attractive to buyers, who then spend thousands of dollars to personalize their new home or fix it.
Growth in homeowner spending on improvements and repairs is expected to moderate through the remainder of 2022 and in the first half of 2023, according to Harvard University’s Joint Center for Housing Research’s Reinventing the Future program. The Center’s Leading Indicator of Remodeling Activity predicts that homeowner improvements and repair spending will increase 17.4% this year to $431 billion in repair spending. That figure will slow to 10.1% by the second quarter of next year, with total spending expected to be $446 billion in 2023.
Chris Doyle, CEO and co-founder of construction finance firm Billd, said small businesses should understand what’s going on in their markets and consider moving to a different type of project. For example, small businesses that previously focused on new home construction should try working with renovators. And since residential spending will fall, federal construction projects may also be worth looking into.
“Everyone has to adapt,” he said. “Small businesses have the opportunity to adapt more quickly because they are more nimble than larger companies.”
Daniel Edwards owns the Handyman Connection franchise in Hanover, Massachusetts, specializing in small jobs worth thousands of dollars, such as building decks, replacing windows and doors, and carpentry projects. In the Greater Boston area, which includes Hanover, home sales fell 20% in July. The median price of a home sold was $650,000, down 2% from June but up 8% from a year earlier, according to Re/Max.
Edwards said he usually books three to four weeks of work, but recently it was two to three weeks. He said clients were getting tighter on money: They wanted smaller jobs, wanted to see receipts and questioned the price of materials. For example, one customer saved about $25 by deciding to install a toilet paper holder himself rather than paying someone to install it, he said. Another customer who asked for a quote for gutter cleaning decided to hold off. But despite the slowdown in business, he said the decline was not as bad as he feared.
“I certainly don’t see the normal levels in July and August, but I don’t see the big drop I feared. People still want small and medium projects,” he said.
Inflation has been affecting Tom Monson’s St. Paul, Minnesota, business, Monson Lawn and Landscaping. He had to raise the price—he now pays $62.50 to mow the lawn. From $50. Turf installation costs $1,250, up from $1,100.
More price-sensitive customers have cut back. One client planning to build a new lawn decided to wait until next year, while others reduced their biweekly landscaping appointments to monthly.
Curbio is a start-up that offers pre-sale home renovations for no fees until the home is sold. They operate in 52 markets across the country, from Chicago to South Florida. As the housing market slowed, they also started offering smaller projects.
“As markets start to cool in certain areas, people are much more sensitive to timelines,” said Olivia Mariani, vice president of Curbio. “Previously, homeowners might be willing to wait eight to 12 weeks to completely remodel their kitchen. Now, they’re asking for the minimum viable work.”
So instead of a full-scale renovation, Curbio started shifting project types toward more “refreshes” — like painting cabinets or refinishing hardwood floors. It has lowered its previous minimum price of $15,000 projects, and now 30% of its projects are under $15,000.
Mariani said Curbio’s data shows that renovating cabinets can help increase the price of a home for sale, just like a bigger job.
“Buyers just want a house that doesn’t require maintenance — a complete cabinet redo isn’t really necessary,” she said.
More must-read stories from TIME