On How Inflation is Impacting Home Improvements
People are feeling the effects of inflation every time they spend money, even on maintenance and upgrades to their homes.
Inflation's effects, including rising costs, may be felt in every area of life, including how much money we have available to put toward home renovation projects.
Some homeowners are now delaying or even canceling their initiatives as a result.
According to a poll conducted by Nationwide Insurance as recently as March 2022, "71 percent who have future projects anticipate to continue with them despite greater prices, delayed schedules, and restricted availability of the necessary components."
But persistent inflation and greater consumer awareness have shifted attitudes. Inflation and rising costs prevented home improvement efforts for 46% of recent purchasers, according to a Hippo research conducted in June.
These are just a few of the most obvious ways that rising prices have altered the economics of home renovations of all kinds.
Money Spent on Raw Materials
The most noticeable effect is the increase in the cost of building supplies generally. Since 2020, the price of timber has soared, even after accounting for inflation.
Higher prices likely to be here to stay for the foreseeable future due to a confluence of factors including rising timber costs, supply chain difficulties, and inflation. There is little chance of contractors lowering their rates even if prices suddenly dropped.
Fuel Expenses
Inflation as a whole has been more stable over time, but the price of gasoline is expected to rise and fall more dramatically in 2022 than it has in the past. Current gas prices are about 60% higher than they were a year ago. That's terrible news for everyone, but the construction industry in particular will feel the pinch.
Trucks with the kind of payload capacity required by contractors don't exactly have the best fuel economy. Contractors have to charge more when gas prices increase to cover the cost of maintaining their fuel supplies. As the price of gasoline rises, construction equipment like front-end loaders, dump trucks, and cranes will become more costly to use.
The expense of getting around has also increased. It's one thing to think about gas money while operating a backhoe, but another thing entirely when transporting one to a construction site. Transporting building supplies and waste containers to the site also consumes energy. Even a seemingly mundane task like digging a trench has suddenly ballooned in price compared to the previous year.
Costs and Availability of Loans
Refinancing or using a Home Equity Line of Credit are two common ways for homeowners to fund renovations. These mortgage refinancing loans are growing more costly as the Federal Reserve raises interest rates to fight inflation. It's possible that there are additional requirements associated.
Homeowners may have to take on more debt to pay the cost of the project if building prices and interest rates continue to rise, which increases the likelihood of default on the loan. Banks and other lenders are well aware of this increased danger. Some are demanding extra guarantees, such as stricter change order processes or contingency reserves (cash the homeowner has to have on hand).
Mortgage borrowers aren't the only borrowers out there. The increased cost of doing business is being passed on to the homeowner by contractors who are being hit with rising interest rates on loans for their businesses and equipment.
Accessibility of Vendors
The increase in interest rates on loans has secondary impacts. Increases in mortgage rates have a chilling effect on the market for brand new construction. Demand for remodelers is driven by the fact that homeowners who currently own a house are more inclined to make modifications to it than to acquire a new one.
As of this writing, there has been no decline in house sales. It remains to be seen whether such robust sales can be maintained in the face of increasing housing prices and loan rates. Housing starts and building permits have fallen, however.
Since many remodelers have waiting lists for new customers even before the spike in home renovations in 2020 and 2021, the industry is already struggling to find enough qualified labor. If inflation persists, homeowners that need to employ an expert may have to wait longer than normal.
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