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3 Trends in Residential Remodeling to Watch in Third-Quarter 2019
Houzz looks at how weather, labor shortages and tariffs are affecting businesses
The demand for residential remodeling and design services continues to be strong in the second half of the year. In the video “3 Market Trends to Watch in Q3,” Houzz principal economist Nino Sitchinava discusses how current conditions in the world are affecting businesses in the residential remodeling industry, based on findings of the 2019 Q3 Houzz Renovation Barometer. We’ve linked to a full recording of her presentation below, but here are some brief highlights from her talk.
2. The Worker Shortage Continues
A shortage of skilled laborers has been an ongoing challenge for construction firms, so much so that 85% of remodelers and builders report moderate to severe shortages of labor for the third quarter of 2019, up from 77% two years ago. As of April, the residential remodeling industry had 420,000 fewer workers than it did in January 2007. However, renovation activity is now higher than it was even before the 2008 recession. That means there is more work and fewer workers to do it.
“Carpenters are the most sought-after professionals today, with over 50% of remodelers telling us that carpenters are in moderate to severe shortage of supply, followed by general laborers, framers, tilers, electricians and plumbers,” Sitchinava says.
The effect of a labor shortage is simple: It can delay projects and increase costs.
A shortage of skilled laborers has been an ongoing challenge for construction firms, so much so that 85% of remodelers and builders report moderate to severe shortages of labor for the third quarter of 2019, up from 77% two years ago. As of April, the residential remodeling industry had 420,000 fewer workers than it did in January 2007. However, renovation activity is now higher than it was even before the 2008 recession. That means there is more work and fewer workers to do it.
“Carpenters are the most sought-after professionals today, with over 50% of remodelers telling us that carpenters are in moderate to severe shortage of supply, followed by general laborers, framers, tilers, electricians and plumbers,” Sitchinava says.
The effect of a labor shortage is simple: It can delay projects and increase costs.
3. Some Businesses Feel the Effects of Tariffs on Chinese Goods
In September 2018, the U.S. imposed 10% tariffs on $200 billion worth of Chinese imports, including countertops, cabinets, flooring and other materials commonly used in the remodeling of kitchens and bathrooms. In May, the tariff was raised to 25%. And just recently, a 10% tariff on an additional $300 billion worth of Chinese goods was announced. “The impact of these tariffs on the building industry has been quite immediate, with government indices showing a meaningful increase in material prices,” Sitchinava says.
Results from the Barometer show that 1 in 3 businesses has experienced negative effects from the tariffs. A similar share (36%) of construction firms report no impact, while a greater share of design firms (42%) report a neutral impact. About one-quarter of construction firms and one-fifth of design firms aren’t sure about the impact of the tariffs.
Among the firms reporting negative effects from the tariffs, they report two problems. “First, rising material costs [are] eroding margins on existing contracts,” Sitchinava says. “And second, volatile pricing is causing significant unease among prospective customers.”
In September 2018, the U.S. imposed 10% tariffs on $200 billion worth of Chinese imports, including countertops, cabinets, flooring and other materials commonly used in the remodeling of kitchens and bathrooms. In May, the tariff was raised to 25%. And just recently, a 10% tariff on an additional $300 billion worth of Chinese goods was announced. “The impact of these tariffs on the building industry has been quite immediate, with government indices showing a meaningful increase in material prices,” Sitchinava says.
Results from the Barometer show that 1 in 3 businesses has experienced negative effects from the tariffs. A similar share (36%) of construction firms report no impact, while a greater share of design firms (42%) report a neutral impact. About one-quarter of construction firms and one-fifth of design firms aren’t sure about the impact of the tariffs.
Among the firms reporting negative effects from the tariffs, they report two problems. “First, rising material costs [are] eroding margins on existing contracts,” Sitchinava says. “And second, volatile pricing is causing significant unease among prospective customers.”
The Bottom Line: Architects, Design and Construction Firms Share Strong Expectations
Despite these headwinds, business activity expectations for Q3 remain strong in both the architectural and design sector and the construction sector, with both sides of the industry scoring a 71 for expected business activity at the start of the third quarter. This is considered a strongly positive reading, indicating that demand for services continues to be healthy.
“We typically want to see the expectations indicator above 50 points, which means that a greater number of businesses expect new projects and project inquiries to increase quarter over quarter compared with the number of businesses that expect this activity to decrease,” Sitchinava explains.
Despite these headwinds, business activity expectations for Q3 remain strong in both the architectural and design sector and the construction sector, with both sides of the industry scoring a 71 for expected business activity at the start of the third quarter. This is considered a strongly positive reading, indicating that demand for services continues to be healthy.
“We typically want to see the expectations indicator above 50 points, which means that a greater number of businesses expect new projects and project inquiries to increase quarter over quarter compared with the number of businesses that expect this activity to decrease,” Sitchinava explains.
Watch: Click now to see the full video.
Tell us: What is your firm experiencing right now? Share in the Comments.
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Remodeling and Design Firms Are Optimistic for Third-Quarter 2019
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Tell us: What is your firm experiencing right now? Share in the Comments.
More for Pros on Houzz
Remodeling and Design Firms Are Optimistic for Third-Quarter 2019
Read more stories for pros
Browse millions of photos for inspiration
Talk with your peers in the Pro-to-Pro discussions
Join the Houzz Trade Program
1. Weather Is a Top Concern
The first half of 2019 was the wettest first half of a year in recorded U.S. history, NOAA’s National Centers for Environmental Information said in its State of the Climate: National Climate Report for May. That month saw record or near-record precipitation in many parts of the country, along with flooding in the central U.S., colder-than-typical temperatures in many states in the Western half of the U.S. and more than double the average number of tornadoes in the country. This weather could be a major reason that backlogs — or wait times to take on a client’s new midsize project — are easing for build-only firms.
“Unusual weather conditions so late in the year alone could explain why we have not seen project backlogs increasing and why construction sentiments are somewhat dampened, especially for build-only remodelers,” Sitchinava says. “While extreme weather often spurs additional home improvement and repair activity shortly after the events, the drop in backlogs might signal a delay in some of the larger projects till the next year.”