Market Conditions

Working Hard for a Bright Remodeling Industry

cbroderick — Wed, 15 Mar 2023 14:23:34 +0000

Working Hard for a Bright Remodeling Industry

cbroderick Wed, 03/15/2023 - 09:23

Alicia Huey

Hello. I’m Alicia Huey, the newly elected 2023 Chairman of the National Association of Home Builders. I am honored to represent you and the residential construction industry in this crucial role.

For those of you who were able to attend our International Builders’ Show (IBS) in Las Vegas this February, you heard how remodeling will be a key bright spot this year, much as it has throughout the years since the onset of COVID.

NAHB Chief Economist Dr. Robert Dietz expects remodeling to continue to outperform the rest of the residential construction sector, despite a pullback from consumers due to the elevated costs of materials and labor.

NAHB forecasts the remodeling sector will experience a slowing but nominal growth rate in 2023, and activity should pick up toward the latter half of the year when the Federal Reserve has signaled they plan to decelerate the pace of interest rates hikes.

IBS was super-charged with energy, new products, and tons of networking opportunities. I’m excited to lead the association’s advocacy efforts coming off such a successful event, one that shows the strength of a united industry.

Residential construction is a key driver of the nation’s health and economy. It is our collective responsibility to work with policymakers at all levels of government—and in partnership with the private sector—to address the multiple issues facing America’s current housing market.

I know when we work together, there is nothing that can stop us.

That includes addressing the supply price spikes and constraints that have hindered the home building and remodeling markets for the past two years, as well as a chronic labor shortage. We will have headwinds, but together we can accomplish what we need to.

I know I will work hard every day for our industry, as will the rest of the newly-installed 2023 NAHB leadership team. We will also work with all of you. I know when we work together, there is nothing that can stop us.

I’m honored and excited for this upcoming year. And as NAHB Chairman, I’m thrilled to bring my own 30-years of home building experience to the table and to join you on our journey to build and remodel homes across our nation that enrich communities and change lives.

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Introducing the new NAHB Chairman Alicia Huey

Alicia Huey

Market Conditions

NAHB

Study Finds Remodelers’ Net Profits Declined

cbroderick — Wed, 08 Mar 2023 15:45:42 +0000

Study Finds Remodelers’ Net Profits Declined

cbroderick Wed, 03/08/2023 - 09:45

Remodelers’ gross and net profit margins dropped from 2018 to 2021, according to the National Association of Home Builders’ (NAHB) latest report.

From 2011 to 2018, the average gross profit margin for remodelers increased at a steady pace, yet that flipped, dropping from 30.1% in 2018 to 24.9% in 2021, according to the NAHB’s Remodelers’ Cost of Doing Business Study.

Average Share of Costs

An average remodeling company’s revenue in fiscal year 2021 was $1.9 million. Breaking that down, 75% of those funds were used on “cost of sales,” such as labor, material, and trade contractor costs. Another 20% went toward operation expenses, such as general and administrative, finance, and owner’s compensation.

The net margin before taxes was 4.7%.

Historical Data

Putting it into perspective, the net profit margin in 2011 rested at 3% then remained steady from 2015 to 2018 at 5.3% and 5.2%, respectively.

Gross profit margins in recent years were between 26.8% (in 2011) to 30.1% (in 2018), according to the report.

Influences on Declines

Why did revenue drop amid times of high demand? The report suggests the increase in trade contractors’ cost and direct costs for single-family home building. The share of revenue spent on trade contractors’ cost increased from 29% in 2018 to 36% in 2021.

This data on direct costs for single-family home building comes from the likelihood of remodelers constructing new homes. With high demand for new construction in 2021, more remodelers hoped to take advantage.

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How far did net profits decline and what's influencing the drop?

Caroline Broderick

Industry Data & Research

Builders Focus on Remodeling as New Construction Declines

cbroderick — Mon, 27 Feb 2023 17:44:17 +0000

Builders Focus on Remodeling as New Construction Declines

cbroderick Mon, 02/27/2023 - 11:44

In response to the new construction slow down, builders report going where the money is—remodeling. It's a common strategy during leaner times, and the latest industry outlook from the National Kitchen and Bath Association (NKBA) reports growing confidence from construction professionals as they take advantage of remodeling's strength.

Those builders dipping toes into remodeling report stronger sales from the fourth quarter of 2022 to quarter one of 2023, according to the Q4 2022 NKBA/ John Burns Kitchen & Bath Market Index. Not all remodelers are fans of this strategy. BOWA CEO Larry Weinberg anticipated more home builders entering the remodeling space in a previous Pro Remodeler thought leader prediction, and noted his concern for the shift.

“There are going to be some local home builders jumping into our market because although growth might be slowing in remodeling, in the new home industry, it’s a real downturn,” writes Weinberg. “We see that every time with local home builders.”

Home Builders Shift Gears

With higher mortgage rates and an uncertain economy, more homeowners have opted to stay put and remodel their homes, boosting remodelers’ business and setting the segment up for a stronger year than its new construction counterparts.

“Remodeling slowdowns tend to follow housing market slowdowns, are typically shorter and less severe than new construction,” writes Carlos Martin, director of the Remodeling Futures Program at the Joint Center for Housing Studies at Harvard University. “It’s no secret that rapidly rising interest rates are currently driving a housing market slowdown, but there are numerous tailwinds that we expect to support an expanding remodeling market.”

Remodeling slowdowns tend to follow housing market slowdowns, are typically shorter and less severe than new construction.

Still, respondents to the NKBA’s survey reported while remodeling projects were out there, the scope of projects is smaller. More homeowners seek smaller project scopes or choose to break larger projects into more affordable stages. In response, construction pros seek to increase their project volume to balance the smaller projects.

Fewer construction professionals reported cancellations in projects in the fourth quarter of 2023 compared to the third quarter. The projects most likely to be canceled exceed $50,000 or come at less than $20,000.

Comments (1)

Strength in Remodeling

Submitted by john (jack) knowlton (not verified) on Tue, 03/14/2023 - 18:10

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Strength in Remodeling

We at "Envision Design Build" are seeing an increase in remodeling projects, from whole house to large kitchen and outdoor spaces. We like Remodeling. There are more challenges with the construction and design.

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Some builders hope to benefit from remodeling's strength, giving a slight boost to new construction confidence

Caroline Broderick

News

Market Conditions

NAHB

Industry Data & Research

Kitchen & Bath

The Home Depot Bets on Pros Amid Predictions of Flat Sales Growth

emosse — Fri, 24 Feb 2023 15:43:36 +0000

The Home Depot Bets on Pros Amid Predictions of Flat Sales Growth

emosse Fri, 02/24/2023 - 09:43

For the first time since 2019, The Home Depot’s revenue fell short of Wall Street’s predictions amid a general softening in the home improvement market.

On Tuesday, The Home Depot posted fourth-quarter earnings that beat expectations, but the big box giant still missed on revenue. Officials also projected roughly flat sales growth in 2023.

"We expect this to be a year of moderation in demand for home improvement," said CEO Ted Decker during the fourth-quarter 2022 earnings call on February 21.

The company has benefited from strong sales growth due to inflation and Covid-fueled spending on remodeling. But many of today’s consumers are spending more on travel and/or conserving resources to combat the toll inflation is taking on their personal finances, said company officials.

Also notable, The Home Depot’s recently increased its investment in employees. A tight labor market spurred the company to earmark $1 billion in wage increases for hourly workers which brought the average starting salary to $15 an hour, beginning in early February.

Betting on the Pro Market

Pros represent about 10% of Home Depot customers, but account for approximately half of all its business. Pro sales growth outpaced DIY during Q4, but officials cautioned that this is likely due to contractors still working through their backlogs, and that picture could change.

“The highlight remains the high pro spend,” Decker said on the call. “I mean that is still the strongest piece of the business.”

Over the past few years, the big box giant has invested heavily in pro customers, and recently expanded its Pro Xtra loyalty program adding new benefits and membership tiers.

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For the first time since 2019, The Home Depot’s revenue fell short of Wall Street’s predictions amid a general softening in the home improvement market

Erika Mosse

Business

Financials

What's Your Game Plan for 2023?

cbroderick — Tue, 17 Jan 2023 14:52:35 +0000

What's Your Game Plan for 2023?

cbroderick Tue, 01/17/2023 - 08:52

The remodeling industry has seen enormous uncertainty over the past few years. While market conditions look a little clearer today, it can still be hard for company owners to project growth and make decisions about capital investments coming out of a period of intense—some would say historic—demand. That’s why we decided to focus on what a select group of key industry influencers see for 2023.

In looking at these predictions, some trends are immediately clear. As a general rule, companies plan to concentrate more on marketing as they see the days of “just taking orders” to be officially over.

Another insight from some of these Thought Leaders is a sense that homeowners wanting to go forward may take longer, end up with smaller projects, and require more hand-holding to get there.

Finally, and perhaps more importantly, all our sources mentioned a need for greater vigilance, whether that be carefully watching cash flow, investing in your team, or a more focused approach to sales.

Taken together, you will find actionable advice here regardless of your business area or company size:

Click the below links to read 2023 business strategies and perspectives from our Thought Leaders:

Invest in Your People - Rob Cecil, Alair Homes

Less Growth, More Marketing - Tanya Donahue, RIKB

Larger Remodelers to Benefit Most from Lead Times - Vince Nardo, Reborn Cabinets

A Year of Concerns and Opportunities - Larry Weinberg, BOWA

Continuing Challenges Mean Extra Vigilance - Andy Wells, Normandy Remodeling

Modest Growth Expected in Bathroom Remodeling - Brad Hillier, Re-Bath

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Key industry influencers weigh in on what the future holds

Pro Remodeler Staff

January/February 2023

2023 Game Plans: Year of Concerns and Opportunities

cbroderick — Fri, 06 Jan 2023 22:35:12 +0000

2023 Game Plans: Year of Concerns and Opportunities

cbroderick Fri, 01/06/2023 - 16:35

Larry Weinberg
CEO, BOWA
McLean, Va.

Concerns

I have three concerns for 2023.

First is that we might have a sales slowdown. We’ve been using our busy times to build our backlog as much as we can. When sales are slow, you end up trying to sell from a stance of desperation, and that makes it more difficult.

The second concern is there are going to be some local home builders jumping into our market because although growth might be slowing in remodeling, in the new home industry, it’s a real downturn. We see that every time with local home builders.

If you asked them three years ago, they’d say, “I hate remodeling, don’t want to do it.” And then next year, they’re going be remodelers. And they’ll undercut us because they don’t know what they’re doing.

The second concern is there are going to be some local home builders jumping into our market

The third concern is these supply chain “surprises.” I think there’s still going to be more of them. And it’s not the supply chain issues when we know the cabinets are going to be 15 weeks, instead of eight, and we plan on it. It’s those surprises when we’ve started the job after being told that the elevator cab is six weeks, and then, three weeks into it, we find out it’s actually six months.

Opportunities

As with the three concerns, I see three opportunities for 2023. With inflation, we can get hurt when we have long-term big contracts and prices go up. But in a slowdown, pricing goes down or stays the same. That’s an opportunity to produce a little more profitably, which is good.

Next is the subcontractor and supplier environment. When new homes are going crazy, our business is a drop in the bucket, but when new homes are in a downturn, then the suppliers and subcontractors love us again. That’s something we should take advantage of.

Third is the labor market. We’ve been looking for a director of HR for a while, and a vice president of production. We’ve had situations where good people are poached from us, and we’re continually going back to them with more and more money. It’s been an employee market for long enough now that being an employer market is a good thing.

Read all 2023 Thought Leader predictions and game plans here

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Remodeling industry Thought Leaders share their perspectives on growth, challenges, and plans for the new year

Larry Weinberg

January/February 2023

2023 Game Plans: Less Growth, More Marketing

cbroderick — Thu, 05 Jan 2023 21:53:01 +0000

2023 Game Plans: Less Growth, More Marketing

cbroderick Thu, 01/05/2023 - 15:53

Tanya Donahue
Owner, RIKB Design Build
Warwick, RI

Growth

We had such exponential growth (35%) in 2022, and I’m not sure if that was an anomaly because of pent-up demand. We’re taking a more conservative approach for 2023 because I don’t think we can use 2022 as a benchmark. We’re going to get a 5% growth.

Challenges

I think the client is going to drive everything for 2023. There’s still a lot of expectation from the client.

The supply chain issue is still very real, and I think the client’s understanding of that is a big challenge right now.

We have realized that we have to start talking about those things very early on in the conversation to manage expectations. At the beginning, it’s all about getting a rapport with the client and making sure we’re the right fit, but we’re having to do a deeper dive into the mechanics of the remodel earlier than normal because of what’s happening in the supply chain.

I think the client is going to drive everything for 2023. There’s still a lot of expectation from the client.

I think there’s a lot more of a wait-and-see approach from a client perspective. And from our perspective, it’s about, “No, we need to get you in the queue now so that we can place those orders for the materials to get you the project you want when you want it.”

Advice

Don’t base your budget on 2022, I think it was a bit of an anomaly. You’re better off running your budget cautiously. I think we all need to spend a bit more on marketing again because, let’s be honest, we didn’t have to market to clients in 2021 or 2022.

It’s going to be different in the way that we approach marketing too. What do people want to hear from you? What will make them feel comforted? What will make them feel safe spending their money and putting trust in you?

We’ve been coaching our design team to have deeper conversations early on. “Why are you looking to do the remodel right now? What’s going on in your life?” Normally they wouldn’t cross that emotional boundary on the first call, but they’ve got to get there with the client. If they resist, then you back off. The idea is to tailor our process a little bit toward what they need from us.

Read all 2023 Thought Leader predictions and game plans here

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Remodeling industry Thought Leaders share their perspectives on growth, challenges, and plans for the new year

Tanya Donahue

January/February 2023

2023 Game Plans: Larger Remodelers Benefit Most as Lead Times Shorten

cbroderick — Wed, 04 Jan 2023 21:11:20 +0000

2023 Game Plans: Larger Remodelers Benefit Most as Lead Times Shorten

cbroderick Wed, 01/04/2023 - 15:11

Vince Nardo
CEO, Reborn Cabinets
National

Growth

We are still projecting double-digit growth for our business unit next year. The majority of that will come from geographic expansion and product expansion because of our partnership with Renovo. [The private equity company that purchased Reborn in 2022.]

We have put together more of a conservative plan for 2023, so we don’t have a big shift from our target to our reality if a recession affects us.

That said, I have been doing this for 40 years and I have been through some major recessions and COVID. I do not suspect we’re going to see a substantial impact on our business.

Shrinking Backlog

Over the past few years, everybody has seen their backlog grow to levels they have never been accustomed to in this industry. We have always targeted a 30 to 45-day backlog, but we have been months out the past couple of years.

I anticipate seeing interest rates continue to rise, which is going to cause a pullback on consumer financing and make cash flow tighter.

I think that having a little bit of a headwind with a minor pullback might be a good thing for the consumer because we can start getting our suppliers back to normal lead times and give the consumers better experiences. Organizations that are able to correct the backlog issue will be able to capitalize on market share.

Challenges

Larger remodelers will be the first ones to realize that benefit, while, in my opinion, smaller standalone remodelers are going to struggle. I anticipate seeing interest rates continue to rise, which is going to cause a pullback on consumer financing and make cash flow tighter. The smaller remodelers that have not prepared their balance sheet for that are going to face a challenge.

Because there is so much unknown, remodelers have to be very nimble and flexible. If lead times shorten, how do we react quickly to that on the marketing side? How do we capitalize on that?

Remodelers have to be looking at their data even more than they have in the past. Larger remodelers who have those systems and dashboards in place are monitoring those metrics already, so they will have a leg up in that area.

Read all 2023 Thought Leader predictions and game plans here

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Remodeling industry Thought Leaders share their perspectives on growth, challenges, and plans for the new year

Vince Nardo

January/February 2023

2023 Game Plans: Extra Vigilance Amongst Continuing Challenges

cbroderick — Tue, 03 Jan 2023 14:08:16 +0000

2023 Game Plans: Extra Vigilance Amongst Continuing Challenges

cbroderick Tue, 01/03/2023 - 08:08

Andy Wells
President, Normandy Remodeling
Hinsdale, Ill.

Growth

We’re projecting about the same sales volume as 2022, so flat. We’re also predicting continued supply chain issues and inflation. We’ve struggled with our gross profit and I think that’s still going to be difficult.

Sales

We have a big backlog, so we’ll be busy in production, but I think it will still be difficult because of the supply chain. From a profit standpoint, it’ll be stressed because of inflation.

Interest rates are going to put people on edge, but I don’t see a crash in leads, like in 2008. People are taking more time to decide, and maybe putting it off to see what happens.

Marketing

We stalled our marketing efforts in 2021 and 2022 because we had so many appointments. So we’ve started marketing again and doing workshops, which we haven’t done in almost two years.

Projects

Job size will probably go down. We get a lot of large additions and clients will take out construction loans and combine them with a new mortgage. With today’s rates, I don’t see people doing that.

But it also might have the effect of a more interior remodeling where people say, “Okay, I’ve got this low interest rate locked in, I’m not going to move, so we’ll just stay here and spend money on the house.” I’m thinking our mix will become a little more geared to interior remodeling and a little smaller. So instead of doing the whole first floor, they might just do the kitchen.

Always stay leveraged ahead of your customers. Don’t stretch yourself out too far waiting on product and not having enough money from the client.

Advice

Cash is king. Be vigilant with your projects to make sure you don’t lose money to interest rates or inflation. Always stay leveraged ahead of your customers. Don’t stretch yourself out too far waiting on product and not having enough money from the client.

We’re watching the dollars really closely right now because you don’t know what’s coming around the corner. I think marketing and selling are going go back to “normal” whereas for the last couple of years it was a seller’s market and people were clamoring to buy. Now we have to retrain ourselves back to how it was pre-pandemic, where you have to go through more of the sales process that maybe we bypassed in the last couple of years.

Read all 2023 Thought Leader predictions and game plans here

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Remodeling industry Thought Leaders share their perspectives on growth, challenges, and plans for the new year

Andy Wells

January/February 2023

Home Flipping Market Reports 13-Year Low

cbroderick — Wed, 21 Dec 2022 15:48:45 +0000

Home Flipping Market Reports 13-Year Low

cbroderick Wed, 12/21/2022 - 09:48

The typical profit margins for house flipping hit a low in the third quarter of 2022, according to the latest data from leading real estate data curator ATTOM.

A total of 92,422 single-family homes were flipped in Q3 2022, and the typical gross profits hit their lowest point in nearly three years. The drop in profits also marks the fastest quarterly rate of decline in profits since 2009. This totaled to a gross profit of $62,000, down 18.4% from Q2 profits of $76,000. One year ago, profits averaged $70,000.

House flips accounted for 7.5% of all home sales in Q3 2022, down from 8.2% in the previous quarter. Still, ATTOM reports house flipping remains at its third-highest level in the past 10 years. The highest point came in Q1 2022 with 9.7% of home sales.

“This is a classic good news/bad news report for fix-and-flip investors,” said Rick Sharga, executive vice president of market intelligence at ATTOM. “While flipping activity in the third quarter was among the highest on record, gross profits and profit margins declined significantly, reflecting the overall pricing weakness in today’s housing market.”

Typical resale prices of flipped homes in Q3 2022 dropped to $310,000 from $328,000 in the previous quarter, up from $290,000 one year prior.

“With demand from buyers weakening, prices trending down over the past few months, and financing rates significantly higher than they were at the beginning of the year, flippers face a much more difficult environment today, and probably will in 2023 as well,” said Sharga.

Comments (1)

Home Flippin Decline!!!

Submitted by Todd Chionis (not verified) on Thu, 01/19/2023 - 18:03

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Home Flippin Decline!!!

Can I just say, GREAT!! As a professional carpenter and remodeling contractor I am happy to hear this news. Flipping is suspect at best in terms of quality, proper techniques, inspections/permits. The mere fact that a flipper looks at a home as a quick buck turnaround should make anyone extremely hesitant to purchase a flipped home. Most flipped homes we have had the misfortune of working on are money pits for the current owners. We have needed to remove improperly done work and bring homes up to code, remove poorly installed items only to find they were band aids for even worse items.
Do your due diligence! Check for permits being pulled and closed out, hire a quality inspector, and better yet, pay a quality contractor to walk through your home before you purchase it!!

Sincerely
Top Drawer Carpentry