If you haven't walked into a home-improvement store lately, you may be surprised to learn that the inventory of building materials is shockingly low. Windows are back-ordered six months or more, lumber prices are through the roof, and good luck finding the appliance you want. This home-goods shortage was spurred by COVID-19 after factories shut down and a huge increase in consumer demand. To better understand the current home-improvement market dynamics, Angi (NASDAQ: ANGI) recently released an in-depth report to help gain some clarity as to what the likely trends are in the near future. Read on for a summary of what the home-improvement market is heading for.
Recent economic and social influences have resulted in a 17% increase in the home-improvement market. As homeowners spend more time at home, people are noticing opportunities to improve their property, addressing general wear and tear or making the property more comfortable for the increased time spent at home.
COVID-19 very nearly shut down the world aside from essential services. Since working conditions in factories and distribution centers are in close quarters and remote work isn't an option, many factories were temporarily shut down, leading to significant delays today. Among the biggest shortages is lumber. Seventy-seven percent of remodelers are reporting framing lumber shortages, according to the National Association of Home Builders.
General wear and tear
Setting aside the influences of COVID-19, there are several other factors that are also increasing home-improvement demand. The average age of homes in the U.S. is 40 years old, and new construction is keeping up with filling new homebuyer needs not necessarily replacing existing inventory. When homes age, they need inevitable replacement, repairs, and updates. There is no avoiding the plumbing giving out or the electrical needing to meet code. Considering the fact that the average roof lasts between 20 and 30 years, that's a lot of roofs that are due to be replaced right now and in the near future. When all of these must-do’s are taken into account, you realize that although COVID-19 helped people realize improvement items sooner than they may have otherwise, it is not the direct cause of a large majority of home-improvement projects.
New age of homebuyers
Another large factor at play is the number of millennials who are reaching their peak age for homebuying. There are nearly 72 million millennials potentially looking for homes -- and when there are only 500,000 to 1,000,000 new homes being constructed each year, the math just doesn't add up. And with any new home, especially those in the lower price points or starter homes, most homeowners like to add their own touch, whether it be a fresh coat of paint or modern lighting. If they aren't handy enough to install it themselves, not only is there a demand for the products themselves but the skilled labor as well.
None of this would matter, though, if there wasn't money to pay for it. House values have been soaring, allowing people to draw on equity from their homes and people have started tapping into it. The number of mortgages refinanced has grown by more than seven times from pre-COVID levels. There was also an overall decrease in spending on things like eating out at restaurants or plane flights to go on vacation. All those funds that were normally spent right away sat in bank accounts waiting to be redirected, oftentimes into projects for the home.
As you can see, there are a number of factors contributing to a rise in the improvement market. Increased demand, pent-up repairs, and product and material shortages are the long-term trends we see driving the home-improvement market over the next several months to potentially years, making it a notable trend for real estate investors to keep an eye on. Repairs for rental properties and fix-and-flip investors are directly affected by supply and demand in the home-improvement industry, meaning delays, shortages, and new demand drives cost and returns for investors.