Several key indicators suggest that in many parts of the country, remodeling is continuing to emerge from the downturn’s economic mire. But while a rising tide lifts all boats, experts say it may also bring in some unwanted sludge.
First the numbers. The National Association of the Remodeling Industry's latest Remodeling Business Pulse shows that 80 percent of remodelers expect some level of growth in 2016. Meanwhile Harvard’s Joint Center for Housing Studies’ Leading Indicator of Remodeling Activity shows near 10 percent increases in spending into 2016.
“2016 is looking to be a stronger year for home renovation activity compared to 2015 thanks to the continued recovery in the owner-occupied housing market,” said Chris Herbert, Managing Director of the Joint Center.
Why should replacement contractors care? Because the improving outlook means less competition from remodelers and even homebuilders who were cribbing from the replacement market, says Bill O’Donnell, president of RemodelMAX.
O’Donnell says that during the downturn many remodelers and builders had to do replacement contracting just to keep their doors open. “A full size remodeling contractor would never have crews putting a roof on a house,” he said. “But during the downturn they were.”
Doing small replacement jobs is exactly how many remodelers and builders got their start, so it wasn’t a difficult transition, said Shawn McCadden, president of Remodel My Business Inc. “When the money dried up [for bigger discretionary projects] they had to do something,” he explained. “So they got into lower scale remodeling and improvement.”
That was true for Jess Fronckowiak. “We were able to weather the storm,” he said. “But during the downturn I would bid on anything.” Like many remodelers, Fronckowiak has moved on to more lucrative projects.
But replacement contractors shouldn’t think that this trend means they’re going to have less competition forever, McCadden says. Just as many builders and remodelers “cut their teeth” on replacement work, the growing home improvement market will attract a new group of would-be contractors looking to cash in. “You’re going to get a ton of people coming into the market,” he said.
Unfortunately, many of these upstarts don’t have much more than a set of tools and a truck — with even less business sense. These contractors typically underbid and then get in over their head, leaving customers in the lurch. “I’m already seeing reports about people getting taken by contractors,” McCadden said. “History is just going to repeat itself.”
The best thing established contractors can do in the face of this trend is to continue doing what got them through the downturn in the first place. “During the recession, they established their brand and took over market share,” McCadden said. “So now they can stand out in this sea of contractors who are flooding the market.”