Why are contracting/ remodeling prices going up if we are coming out of the pandemic?
In my industry, I provide a service that consists of 3 components. Labor, Materials and Overhead.
My Overhead is relatively low (happy hours and a few trips to Italy a year) so it really doesn’t need to factor in this discussion.
So let’s start with the Materials aspect of contracting.
This is a complex problem and unfortunately it doesn’t look like the trend is going to shift anytime soon. And before anyone chimes in with a tHaNkS biDeN (OR Trump) or any other political references, No it is not political and has nothing to do with the current or former administration.
So let’s start with the obvious. Clearly the supply lines are still being affected. There was the cargo ship, Ever Given that blocked the Suez Canal recently. Roughly 13% of the global shipping (or $9 billion daily) navigates through that passage and commerce will feel the ripple effect for several months to come. There’s also the fact that people have been home so they’re engaging with more online shopping. Personally, I almost never shopped online (pre-pandemic) and was the “jump in my car and go grab whatever I needed at the store guy”. No more! I’m even ordering a lot of our renovation materials and having them shipped directly to the properties. Inevitably sending more trucks on the road which continues to strain supply lines. Finally among the biggest factors is the reduced need for paper. As a country we continue to shift to a digital presence. That combined with a massive shift in a workforce working from home there are lower needs for large orders of office paper. When making lumber, many of the mills transfer (sell) pulp and other wood byproduct to the paper mills. With paper mills needing to produce less paper they are having to either warehouse or find other means of disposing of this byproduct. Now take a lumber mill who was being paid a lot of money for the byproduct who now has to either “hazardous dispose” of the waste or warehouse it, until disposing, their operating cost skyrockets.
Voila! A deck costs 400% more than 9 months ago. Any by the way, will continue to go up.
Now let’s focus on labor. There has been an ongoing trend in the contracting industry. With the popularity of remodelling homes and growing interest in renovations you would think that the industry would be booming. It isn’t, it’s actually shrinking. Statistically speaking, each day someone becomes a new contractor, 10 leave the industry. This is where things become a little more speculative. So here’s a formula where you have a growing need for people who are trusted and skilled to do work on homes and a shrinking pool of tradesmen capable of doing it. For my remodeling company, we have been and remain extremely busy. I have been scrambling to help new clients while focusing on agents needing properties worked on for listings and of course, my investors.
I’m lucky I don’t have clients waiting several months for projects to begin on their home but many contractors do. This is not how I’d like to operate its just reality.
So what does all of this mean in terms of real estate? Well, with interest rates where they are if you’re looking to buy, buy now! With a shortage of inventory if you’re looking to sell, sell now! And if you need work done, contact a trusted, experienced contractor and do the work NOW. Contracting prices will continue to rise and the demand will continue to increase as well.