Remodeling industry faces headwinds as contractors struggle with inflation and hiring

New home sales picked up earlier this year, according to data out Tuesday from the Census Bureau. From February to March, sales rose by a seasonally adjusted 7.4%, which is a good sign for developers.

But there’s another corner of the housing market where things may not be so rosy: the half-a-trillion-dollar industry of home remodeling.

A new report from Harvard University’s Joint Center for Housing Studies predicts spending on remodeling will grow by just 0.5% in the coming year, which is well below the rate of inflation. Projected challenges include the cost of materials and the availability of labor.

Rachel Bogardus Drew, director of the Remodeling Futures Program at Harvard’s Joint Center for Housing Studies, said the outlook for the remodeling industry is, in a word, “stable.”

“Because that's a little bit more optimistic-sounding than stagnant or flat,” she said.

Drew said the number of home owners seeking remodel permits has grown more slowly of late. And sales of supplies like faucets and windows are down.

“ So people are spending less on the building products. When they spend less on that, we know that they're spending less as well on the services for remodeling,” she said.

In the face of this slowdown, Drew has some advice for contractors: “Lean on your higher income clients.”

Yes, the K-shaped economy is alive and well in the remodel industry. Anirban Basu, CEO of Sage Policy Group, said that’s in part because wealthier home owners tend to be more seasoned ones.

“They're aging in place, right? We've got a lot of baby boomers. They need to deal with the steps in their homes and these kinds of things. They need to have safer bathrooms and kitchens. And so a lot of remodeling activity from that,” he said.

Along with the owners, America’s housing stock is aging too. Which means those homes will need a little more TLC to stay livable. All of which leads Basu to believe the outlook for remodeling is stronger than it may appear.

His message to contractors right now? “Do not reduce your capacity to deliver services to the market,” he said.

Even that is difficult, though. President Donald Trump’s immigration crackdown has made it hard for remodelers to find and retain qualified workers.

But it’s still important to try, said Macrina Wilkins, director of market insights at the Associated General Contractors of America.

“Securing and having an established workforce will put you in the best possible position to be able to take on contracts that become available,” she said.

Wilkins said more of those contracts should come if the rising cost of building supplies ever starts to ease.