By Bobby Parks
Even though we continue to deal with labor shortages and the added challenges of material increases and availability issues, actually putting jobs on the board has been pretty easy for most contractors. For now at least. Up to this point even though costs to build new homes have increased, low-interest rates have helped home buyers accept the rise in price as the actual increase in mortgage payments has been marginal. However, as interest rates begin to increase, demand could begin to flatten out as the combination of increased monthly payments becomes more significant, and qualifying for loans may come into play. And slow down in demand would contribute to allowing the production of materials to begin catching up and alleviate availability issues. How long this takes and what combination of factors it takes to get there remains to be seen. It is a complicated scenario that is still being determined and creates additional complications for comps and appraisals, not to mention quoting jobs.
There are so many questions to think about:
- Does the new cost to build raise existing home appraisals at a new higher value? Or does it negatively impact new houses built at increased cost once material prices drop back down? Which way will appraisals be adjusted?
- Do the same factors impact the expected return or long-term value of a deck or remodeling project if built during this period?
- Who knows what the new landscape and new norm will be when all the dust settles?
There’s no doubt that homeowners are spending more time at home and are willing to invest in staycation-type projects. But depending on how long this trend continues, some may begin to decide it’s better to wait and hope to get more for their money. For deck builders and remodelers, the prolonged higher cost for projects is already causing some customers to delay projects and this may increase as we move through 2021. Realizing there are other factors in play, once the intensity levels drop, material prices should follow. Regardless of whether material prices creep back towards pre-Covid levels or some version of a new higher level of pricing becomes the standard, at some point, we will assume some normalcy. Hopefully, normalcy means availability issues go away, better predictably in cost, and an increased comfort level with all levels of the supply chain, builders, and customers.
Supply & Demand:
As people become more comfortable that Covid is under control, staycation rates may drop, reducing the spending from these funds that are also at an all-time high. Reduction in material cost should help stabilize the industry and remove the “not spend now” concerns but the “staycation” side of the equation may factor in as people begin to venture out again. When this occurs and people aren’t knocking down your doors with demand for work, or referrals slow down, where you are positioned as a contractor will again affect just how busy and profitable you are. Regardless of which combination of these arenas you operate in, competition and how you mix in with it will matter. Whether you are perceived as one of many or if you can stand out in a crowded field of competition will come back into play. Where you stand from a customer perception standpoint will affect the price you can charge. Where you are now scheduled several months out could be reeled back into just a few weeks with gaps in the schedule.
Plan for the Worst, Hope for the Best!
Whether you operate during a period in which potential customers delay jobs due to current or extended high material cost, or we settle back into a more normal period of good to average demand, getting back to the basics and counting on a pre-planned business approach with sound fundamentals will be a more reliable strategy in the long run versus just counting on the current abundance of customers. The companies that plan for the worst and hope for the best are more likely to set their businesses up in a way that creates stability and balance. They leave less to chance by adopting a plan that can be easily adjusted and ensures consistency regardless of market conditions. Almost any contractor can do well during a period as we are currently experiencing. And right now it probably seems hard to believe that contractors will struggle with putting jobs on the board anytime soon. Labor shortages should, to some degree, ensure that there will always be work for those that want it. But the economy and circumstances have a way of changing. Politics and policy changes can impact directions of trends and markets. Once our current unprecedented period settles down, the surplus of customers will be reduced with leads and sales compared to now. It doesn’t mean it won’t still be a good period for outdoor living contractors and remodelers. It will. It just means that you will again have to focus on the fundamentals and not just count on being overrun with demand and leads. It will mean that you once again have to compete for the kind of jobs you want. Although everyone wishes prices were back to pre-Covid levels, the reality is, you may not like what it takes to get us there. It likely means that a slowdown in demand has occurred. So enjoy the cruise control ride now, but prepare for future challenges which may be here sooner than you think.
Bobby Parks / Instagram: @Bobbyparks007
Copyright April 6, 2021 – Bobby Parks