At some point over the last 18 months — a period when the Federal Reserve began gently tapping on the breaks of the economy in order to stave off inflation — the froth came off the housing market.
Bit by bit, as the Federal Funds rate rose in 11 consecutive quarter-point increments, and subsequently as prime rates moved higher, the urgency to upgrade, move and/or remodel dissipated somewhat. Until recently, continually rising home prices allowed a whole swath of homeowners to tap their home equity like they would an ATM. Now, as those go-go days recede in the rearview mirror, remodelers are faced with a market that is simply healthy and normal in the near term and an above average over the long term.
But after the heady period that remodelers just experienced, healthy and normal can feel slow and scary. This is particularly true for those remodelers who’ve not been around long enough to know anything but the extraordinary remodeling demand of the late-’90s and early ’00s. Ask wizened remodeling veterans about the current state of their business, and many will concede that demand, while strong, has slackened. And to a person, the very next wizened comment out of their mouths is a prediction there will be some fallout in the ranks of newer remodeling firms. They contend there are a lot of “new-ish” remodelers out there who are going to find slower growth difficult. The weak will be exposed and die.
I write this column to all the remodelers who started their businesses in the last five years. If this merely normal and healthy remodeling market feels slow and scary to you, then it’s probably time to work on your business, to focus on the nitty-gritty of earning profits. The natural impulse is to sell and market your way through it. And in the end this might be precisely what your business may need. But more often than not, remodelers who’ve thrived through all kinds of markets, say the focus should be on finding ways to make each job more profitable. And this is no small task.
Do you currently measure your performance closely enough to know your profit on each job? That is a big first step. Then you’ll need to determine the type of jobs at which your team excels. If room additions don’t end up profitable, stick with kitchens and baths, or other types of work where you can consistently make money. Clearly, this month’s Remodeling Show in Chicago is an excellent place to network and learn these finer points; but there are so many other opportunities for education, particularly via the training required for certification programs offered by the remodeling trade associations. Now is a great time build a firm that can successfully meet the challenges that lie ahead, because longevity typically translates to an ability to earn profits in all types of markets.