You're finally ready to complete the remodel you've been dreaming of, but you've been hearing talks of a recession and aren't sure if you should proceed. Should you remodel during a recession or not? Is it a wise way to allocate funds during a financial downturn?
Will a Recession affect remodeling?
According to the Joint Center for Housing Studies of Harvard University, the annual growth in homeowner spending for improvements and repairs will soften during the first half of next year. The first half of next year is also the same time the National Kitchen and Bath Association (NKBA) predicted an economic downturn.
The NKBA based its prediction on observations over the last century of how in six of the previous eight rate hike cycles by the Federal Reserve, a recession occurred within 18 months.
This projected decrease in consumer demand for remodels will work in your favor, here's how.
Material costs will be cheaper.
You may or may not be aware of how materials such as lumber and plumbing fixtures increased significantly during the pandemic, which caused remodeling prices to skyrocket. At one point, lumber increased by over 50 percent! This influx was due to a lack of labor and incredibly high demand. The record-breaking year for new home construction and low-interest rates caused people to rush into buying a home, even if the house needed much work. This combination was behind the demand for materials that drove prices through the roof.
However, as demand for materials starts to dwindle during the possible upcoming recession, the prices will decrease. Since materials are a huge chunk of a remodel's price tag, this will positively impact the overall cost of your remodel.
Labor costs will be cheaper.
During the 2008-2009 recession, new construction spending plummeted by almost 70%, according to data from the National Kitchen and Bath Association (NKBA). If that happens again during the next recession, people will charge less for their labor to get more work because they will have to compete with subs working less for builders.
In fact, during the 2008-2009 recession, remodeling only went down by 11.4%. As a result, some subcontractors transitioned to remodeling vs. new home construction, and many quit the industry altogether.
After the new homeowners settled into their newly purchased, outdated homes, demand for remodeling rose, driving the prices up by 20% and up!
During the upcoming recession, subcontractors will be freed from new home construction to work in the remodeling sector. Their prices should also theoretically decrease due to the lower demand for work.
Timelines will be shorter.
During the pandemic, people were in their homes more, forcing them to pay attention to all the home improvement projects they had put off for years. Or they got the urge to sell their homes to make money from the frenzy of buyers trying to lock in low-interest rates on mortgage loans. Builders were also cranking out homes to take advantage of those buyers too.
So between these assortments of opportunities for buyers, sellers, and builders, seizing chances simultaneously created massive supply chain issues that led to long wait times for products like windows, appliances, and cabinets. Some windows were taking a year to come in for some customers!
Shipping delays can wreak considerable havoc on a home's remodel timeline because certain phases in a project depend upon another phase being completed. For instance, if the kitchen cabinets take forever to come in, you can't do the backsplash, put in the appliances, or do some of the electrical work. Longer timelines also add costs because it increases the overhead needed for your contractor.
The good news is that doing a recession, just like with the materials and labor costs, the supply and demand drive the timelines. So your timeline will be shorter for the substantial completion of your project.
Another reason timelines will be shorter during a recession because contractors won't have as many projects to juggle. This decrease in work will allow them to devote more time and attention to your remodeling project.
You'll be able to use quality contractors.
If you tried to call a construction company during the last two years, you probably either did not get anyone or, if you did, were told that it would be a long time before they could even come out to view your project. They were probably booked up and did not have any urgency to complete your project. During a recession, when contractors are slower, you'll have a greater chance to work with the one you want.
The same applies to subcontractors. When general contractors start working on your project, they give their best subs first dibs. However, they go to the second string of subcontractors when they're booked to ensure they can meet the projected timeline. In a recession, you have a greater chance of having the best in the respective industries working on your project.
You'll reap the benefits on the other side.
With savings from materials, labor, and choosing quality contractors and subcontractors, remodeling in a recession can be a wise financial decision because you can add equity to your home for a lower price.
Or, if saving money is not your objective, you would be able to purchase higher quality materials at a lower price. You could also get your project done faster.
When would remodeling during a recession not be a good idea?
Although I've mentioned the benefits of remodeling during a recession, It's essential to know the risks too.
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Not getting a return on your investment.
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Contractors being short on labor
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Banks may make it more challenging to qualify for loans.
All of these are potential risks of remodeling during a recession. If you are still considering starting a remodeling project during a recession, research and make sure you are making wise financial decisions. Talk to contractors and suppliers about pricing, and ensure you have a solid plan for how you will pay for the project. If you can manage your finances well, starting a remodeling project during a recession can significantly improve your home without breaking the bank.
We hope you find this blog post helpful and consider setting up a free initial consultation with us today.
