Greetings again my intrepid homeowners! Right about now, things probably seem a little restrictive. Mostly because they are. You’re not nuts. Especially when considering what I laid out in my last installment. Our economic system is struggling with some foreseeable conditions that now scream for attention. (Like they weren’t before!) I won’t even attempt to address the causes of our current fiscal reality other than those things impacting housing. Partly because this is the industry that feeds my family (transparently self-serving) and it’s the industry that touches virtually everyone next to food and clothing. The symptoms of the systemic breakdown in the housing market are reflected in essentially every dwelling type from multifamily to single-family housing in all income strata. Outrageous costs and diminishing values.
In the late 70’s and early 80’s I cut my professional teeth in North Florida designing subdivision developments. Around 50% of my business then was entry level home design. The market flourished as homeownership was within sight. Even in the face of 15%+ interest rates we forged ahead. Now, this market has all but vanished. Then I spent a decade or so designing custom homes for middle-income families. Again, the horizon was steady and predictable as Americans sought their equity, their roots in the nation. Then came a sobering “market adjustment” in the early 90’s. That one hurt! After huge layoffs in the design industry, I remember working with a number of my design colleagues in any job we could find. Fun times. In 1996, following said “market correction” I saw a shift that I felt might bring renovation to a much higher percentage of residential construction in the coming years. Until then in America, the rule was bulldoze and start over. That did not seem sustainable. I was right and, as property values increased beyond the norm, we enjoyed a more diverse building market until the great splat of ’08-’09. I couldn’t really quantify the crash coming ‘til just before impact. With about 30 days warning, we managed to save our financial butts to some degree and make critical moves in a timely fashion. Most of my colleagues weren’t so fortunate. However, within about 3 years, remodeling and renovation took off like a rocket. Basically, property values escalated wildly and the need to reuse as much of a house as possible became very attractive as an option. Often, it was tantamount to project feasibility. However, construction costs were still very realistic and achievable. Banks actually developed whole new lending products to address the formerly unserved renovation market. This is where the fire really caught a strong wind. As private equity gained higher percentages of the residential real estate market, and investor returns were paramount, real estate prices soared. Yet, construction costs were still manageable for the most part. We kept it going and the market was healthy as far as we could see. At least for about 10 years until we had the shared global experience of Covid-19. This is about where the wheels came off the wagon. I don’t have enough paper, and you probably don’t have enough patience, for me to explain “how” things went sideways. Suffice to say that everything I stated in my last blog came to pass. On another day, in another forum, this really is an interesting discussion. Living it though, not so much. So, here we are.
The upside is that all is not gloom and doom. This is because we, Americans, are a collective. We buy houses. We renovate houses. We remodel. We rent apartments. Our buying power is what drives industries. When our power is minimized, markets sink and profits drop. We are only victims if we choose to be. The catch is the “we” part. We must respond and not react and, we must do this together.
So, market recovery starts with homeowners. Many of you own a home and probably have a pretty favorable interest rate that is never to be seen again. But now, you might be looking to modify your home due to a good thing in your life. A new baby. Another baby. (They know what causes that by the way.) Maybe, when you weren’t lookin’, they became teenagers. Kids are sneaky like that. Maybe you’re consolidating your family with Grandparents. There are a hundred reasons to consider making your home address your new dynamic better. The number one question is, “where do I start?” As I said in my last brain burp, the 1st thing that can recover is material costs. Property values, like we see in Atlanta, are here to stay. Maybe forever. Interest rates have little practical hope of falling below 5.5% at best. Labor is high but it’s going to stay that way. Once pay scales adjust to something that attracts sufficient skilled labor, they’ll stay about the same. Therefore, lateral moves are highly unlikely and usually unwanted. You love your community. Your house just isn’t keeping up with your life. I get it. So keep it!
To close out today’s thought, don’t be in a hurry. Be patient. Material costs will come down. It just might be a while. If homeowners will table their projects for a year, on a national scale, suppliers will get the point. Now (oh joy) we have tariffs. Whodathunkit!? The problem is that when opportunists see an avenue to hike prices just because they can, we reward them by proving them right! We don’t say, “NO!” Rather, we grouse and pay the ransom. I have watched the market consistently feel out the consumer’s tolerance for pain. It’s amazing! Purely on a pain threshold measure, we are brutally tough. Sometimes kinda’ stupid, but really tough. So stop. Say no. Not forever. Just until they say ‘uncle’. Take back your path to equity in America. In the interim, plan, save and plan some more. I promise next time to quit pounding the podium on the economy stuff. It was just important to lay out the field. It’s like a racecar driver walking the track. Next time, I’ll begin to share the things you can do to work toward the vision you have for your home. Really! I promise.
