During the coronavirus pandemic, it's become increasingly difficult to become a homeowner -- home prices are high, and competition for homes is stiff. Not only that, it's become difficult for those who already own homes to make home improvements, again because of high costs.
What's going on with the American dream of homeownership? And why does it cost so much to make home renovations these days? Here are six factors to consider so you can adjust your reno budget accordingly.
1. Demand is high
Consumer goods have risen by double-digit percentages from last year due to supply shortages and increased consumer demand. As for home improvement products in particular, demand is high from people who were spending more time at home during lockdown orders and noticing all the things that could be improved around the house.
2. There's a huge problem with the supply chain
Just as we've become used to blaming the coronavirus for everything that goes wrong in our lives (weight gain, drinking too much, fights with significant others, too much screen time for the kids), now we're hearing more and more about supply chain issues: Whenever we can't get or are paying more for a product, we usually hear it's because of a supply chain problem.
Here's what that's all about:
- Recession: When the global economy went into a recession because of the pandemic, it upended the supply chains as consumer shopping patterns changed. As orders for goods were cut back, the normal supply chain was disrupted, and it's taking time for it to return to normal.
- Lack of drivers: This mainly refers to the tanker truck drivers that deliver gas. A gas shortage and higher prices at the pump both delay the supply chain and cause prices for goods to rise, since it's more expensive to ship those goods.
Cost inflation is happening across the board. Regarding appliances needed for a kitchen remodel, Whirlpool (NYSE: WHR) CEO Mark Bitzer, for example, blames price increases of Whirlpool products (which includes KitchenAid) of between 5% and 12% on the increased costs his company must pay for raw materials to make the appliances, such as steel and plastics, and the increased cost of oil and freight to ship goods. Note that those costs are not unique to Whirlpool; they apply to other brands as well.
4. There's a computer chip shortage
Another factor for an increased cost of home appliances like refrigerators, washing machines, and dishwashers (and electronics in general) is a global computer chip shortage. There's been an increased demand for semiconductor chips, which are used for everything from computers to dog-washing booths to appliances, and you can't just increase supply overnight.
Alan Priestley, an analyst at global research firm Gartner, told CNBC: "You can't suddenly go to a chip vendor and say, 'give me a million new chips' if you haven't got the order in place because there's a throughput time." He says that throughput time would be at least three months.
Currently, China is the No. 1 producer of computer chips. According to the National Kitchen & Bath Association (NKBA), "Appliances have been the most difficult products to source, with 51% of designers reporting difficulty sourcing refrigerators, ranges/stoves, and dishwashers."
5. The price of lumber is high
If you want to make home improvements that typically require lumber, such as a new outdoor deck or an addition to the home, you'll pay significantly more for that lumber. During coronavirus lockdown orders, lumber mills had to shut down, and it's going to take some time for the mills to ramp back up to get an adequate supply to meet increased demand levels.
6. There was a Texas freeze
Winter storm Uri toppled the Texas electric grid, and the state lost power. Resin and vinyl plants are located there, and because they shut down, vinyl windows and siding have become more expensive. Plumbing pipes are also more expensive because of a spike in repairing a lot of burst pipes in the Lone Star State. Texas also refines petroleum, and that's needed to produce paint, which is also more expensive to get now.
The Millionacres bottom line
Home improvements will be more expensive this year. If you're a homeowner who wants to make improvements or a fix-and-flip investor, figure the extra costs into your budget. It still might make sense to get jobs done now, as you could still sell an improved home for more money. Or you can wait this one out until prices (hopefully) stabilize.