Today I want to dig into my opinion of the current market and what I am experiencing as far as work and leads that are on my plate and coming through the door. I understand that every market is different, but I also believe that the national economy affects our entire industry in some way, shape, or form. The past five years have been booming. We had a quick hiccup when Covid first hit, but it picked back up shortly after as if it did not miss a beat. We experienced material shortages, labor shortages, and reduced production which only complicated and exacerbated things. Home prices skyrocketed, people had a ton of buying power with low interest rates, renovations were in full swing due to people working from home and low interest rates, and the construction industry was as lucrative as ever (assuming you adjusted and adapted your business accordingly).
Post-Covid the entire world seemed to get more expensive. The cost of living, labor, materials, and just about everything else in life skyrocketed. I recently paid fourteen dollars for a tube of silicone. The construction industry is not the only sector that experienced these hardships. Everything these days seems to be made a little worse and costs a little more. Will we ever find a balance again? I do not believe it will go back to the way it once was, but I do foresee some sort of stabilization. It seems the past few years have been extremely polarizing, pushing economic limits and extremes.
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The latest economic shift has been the drastic increase in the cost of money. Interest rates have gone through the roof. Whether you are looking to purchase a home, renovate a home, or borrow money, you will be paying a premium to do so. The good news (if you are lucky enough to own a home or have money invested) is that you have established some new found equity in your home due to market value, and your investments have recovered from the past few years and began to grow again. Again, there is little stability and we are experiencing extreme shifts. The bad news (if you do not own a home or have money invested) is that it is costing you a lot of money in interest to be able to acquire a home or borrow for a renovation. I do fear that people are overinvesting or over-buying and when the market stabilizes they will be in trouble (assuming the interest rates remain high relative to the home value).
Now that all of that is out of the way, how is this affecting me and my work? First off, the amount of leads that I am getting has drastically reduced compared to a few years ago. I am fortunate enough to be in a position that requires a small volume of work to be successful, so the reduced amount of leads affects me less than larger companies. I also have a very specific customer, so whether I get one hundred leads or ten leads, I am turning most of those jobs away regardless. Poor business? Possibly, but this is what suits my personality and business model. It is an intentional decision that suits me well.
I have found that the amount of inquiries from return customers has also been reduced in the last six to twelve months. It seems as though people do not want to borrow money (I do not blame them), and they do not want to pull their money from savings. Their homes have gained equity regardless of whether they remodel or not, so there's less financial benefit to renovating right now. Truth be told, I typically have a year’s worth of work on my plate at any given time. Sometimes a bit more, sometimes a bit less; but with the low-volume model that I have established, that is my sweet spot. If I book out much longer I am stressed beyond belief and my customers are up my ass (I would be too), and if I have less than that on my plate I am also stressed beyond belief. As you see my personality and anxiety leaves me little room for error. Too much work = stress. Too little work = stress. I most likely should not be in business for myself.
Most of the leads that are coming through the door are large projects where customers landed a new home, sold an existing one, and came away with enough equity where they are not required to borrow quite as much money. They are able to afford a larger renovation. The other side of the coin is delivering smaller projects leads like bathrooms and cabinet jobs. I can be successful in either realm so this does not create panic for me. There are a few kitchen leads sprinkled in, but I do believe that there are many hungry remodeling contractors out there (and will continue to be), so it is extremely important to understand your customer, your numbers, and your business.
Over the next year or so, interest rates will come down slightly, but not enough to make any significant changes within the market. I foresee your market conditions remaining relatively stable (although high) for at least a year. I would like to see interest rates stabilize over the next twenty four months to allow customers and the general public to be able to afford the lifestyle that they work so hard to obtain. I do feel that the current economic conditions are further expanding the class disparity. The middle class is going to make its way into the upper or lower class without much say in the matter. When I started my business I said that I wanted to be able to work hard and be compensated for my effort. I have found a way to make that happen, but the cost of living often negates the compensation. Fortunately we are a two-income household, but it is still difficult from time to time.
My advice to anyone who is struggling with the current market is to hunker down, remain lean, and keep plugging away. Do not borrow money that you cannot afford and put what you have in an interest bearing account. When things stabilize in a couple of years, it will be easier to sustain a business and feel less like a feast or famine. I want to reiterate that I do not believe we will ever be back where we were, but we should be able to reach some sort of normalcy.
If you enjoyed reading (or listening to) Tyler's thoughts on the slowing renovation market, be sure to check out his process for punching out a project or his tips for becoming proficient in multiple trades.