Advertiser Disclosure

advertising disclaimer
Skip to main content
home renovations

Episode #16: Home Improvement and Real Estate Investing with Mischa Fisher, Chief Economist, Home Advisor

Mischa Fisher is the Chief Economist for Home Advisor. Prior to joining Home Advisor, he was the Chief Economist and economic policy advisor to the Governor of Illinois, where he oversaw the state agencies responsible for employment security, economic development, housing, and professional licensing. He was previously a Deputy Director of the Illinois Department of Commerce, and a Legislative Director for the United States Congress in Washington, D.C.

In this episode, Millionacres Editor, Deidre Woollard, interviews Mischa Fisher, Chief Economist at Home Advisor. They discuss the home improvement and remodeling boom, how long it will last and what it means for investors

Transcript

Mischa Fisher: The other thing is if you're flipping or doing an Airbnb, you remember you're taking a bunch of capital and tying it up in a non particularly liquid asset that does have some cost of acquisition, that does have a carry cost. If you're not smart about these things, you might still make a profit. You don't have to be the world's shrewdest businessperson to necessarily make a profit. But how much profit? Because you can, on a relatively risk-free basis, without all the effort, and time, and nuisance, and headache, and risk throw that money into something that's more passive and earn a better return. If you're doing all these things, you should be doing it to get a return that is outcompeting what you could get for the same amount of effort elsewhere, and being intelligent about these things is where that return is. If you're foolish about these things, yeah, maybe you'll still earn a little bit of a profit, but you're just wasting your own time if you're not earning a return that's above what you could just get throwing something at that, get your preferred equity.

Deidre Woollard: You are listening to the Millionacres podcast. Our mission at Millionacres is to educate and empower investors to make great decisions and achieve real estate investing success. We provide regular content and perspective for everyone from those just starting out to season pros with decades of experience. At Millionacres, we work every day to help you demystify real estate investing and build real wealth.

Deidre Woollard: Hello, I'm Deidre Woollard, an editor at Millionacres. Thank you so much for tuning into the Millionacres podcast. I wanted to ask you, listeners, have you noticed a lot of lines at Home Depot and Lowe's this year? I have. Have you been bruising up your home and your investment properties more than usual? Well, if so, you're not alone. Today, we're going to talk about home improvement and the remodeling boom, how long it might last, what it means for investors besides maybe investing in a little Lowe's or Home Depot stock. To answer these questions, my guest today is Mischa Fisher, who is the Chief Economist for Home Advisor. Prior to joining Home Advisor, he was the Chief Economist and Economic Policy Advisor to the governor of Illinois, where he oversaw the state agency responsible for employment security, economic development, housing, and professional licensing. He was previously a deputy director of the Illinois Department of Commerce and a legislative director for the United States Congress in Washington DC. He is just a great resource for understanding the economics of home improvement and remodeling. Thank you for joining me, Mischa.

Mischa Fisher: Oh, absolutely. Thank you for having me.

Deidre Woollard: I wanted to dive into a report that you and your team published recently and it showed that home improvement and remodeling is way up from last year. So is that just a COVID thing or is that also a housing market thing?

Mischa Fisher: That's a great question. It's not just a COVID thing, there are severe labor supply restrictions that are driving up the price of labor and creating a bit of a scarcity there. Of course, materials costs are way, way up, which is also driving some of the top-line spending amount. There are these longstanding core drivers of housing and remodeling surrounding demographics and housing stock. We've got a limited supply of housing, housing is aging, it always needs upkeep, and maintenance, and repair just because of weather, and wear and tear, and usage, and accidents, and all those sorts of things. We also have these demographic trends that are pushing it. But this year colliding with those things was this big increase in demand because of COVID and then exacerbating that is a supply shortage and rise in materials costs and supply chain disruptions. The trade war had added tariffs to a lot of common inputs. If you look at the price of lumber right now, it's gone way up. Anybody who's been paying attention to the price of those baseline two-by-fours when you walk into Home Depot or Lowe's, at the beginning of the year they were around two or three dollars and now, they're close to $10. You can see a pretty dramatic increase in the pricing of a lot of common materials as well.

Deidre Woollard: That's true. I remember there was a lumber spike about a year and a half ago and then prices went back down, and now, they've gone up again, which I know put strain on homebuilding as well. I think it's interesting that you mentioned the aging of homes in America. I know the average home, I think it's around 37 years old. A lot of these homes are starting to show wear and tear. But I wanted to ask you about different projects that are being completed because that's always my favorite thing about these kinds of reports, is to see what other people are doing, what they're prioritizing. In the report, it showed that the top completed home projects were bathroom remodels, interior painting, and also new flooring, which I found interesting. Is that different from other years? Is it shifting around?

Mischa Fisher: You still see some shifts year-over-year. What we saw this year that I think is a new phenomenon, is people looking for discrete one-off things to be completed. You might have a hard time coordinating all the logistics, or you're concerned about the safety issues, or there's supply constraints undoing an entire edition or entire room remodel, but swapping out the flooring or redoing the painting, those are much easier to do in the middle of a pandemic and you still get that big visual impact that can really redefine a space from doing those smaller more discrete tasks. I think that's been the story this year. Let's say, the listener has been spending a lot of time at Home Depot paying attention to price of two-by-fours. If you walk by the paint aisle, you've also seen a shortage of a lot of painting supplies too, because that's another one where the cost isn't that great. The time commitment and the logistics surrounding it are a little simpler than a full dramatically remodel, and you can make a big, big impact for not a lot of costs. Flooring is the same story as painting. It's just the costs are a little bit more, but it's the same idea where you can really redefine a room without having to break the bank on a big, big investment in a larger project.

Deidre Woollard: You don't need a contractor which I think may also be a factor this year.

Mischa Fisher: Yeah, exactly. It does mitigate the supply issues that people have in terms of finding a contractor.

Deidre Woollard: We talked about the fact that homes are getting older, there's that need for maintenance. Was there a particular maintenance issue this year? Because one of the things I've heard from people, plumbing, for example, is because people were home more, their plumbing was taking more stress or things like electricity or AC because they had the power on all the time. Were there any of those issues that showed up in the report?

Mischa Fisher: The report was focusing on the remodeling spending shifts specifically, but on maintenance spending, there has been this year a real need for people to prioritize what's the most immediate. Things like water penetration anywhere or as you said, plumbing or H back. If you are home all the time working from home, pre-COVID time, you weren't running your AC, for example, during the day all summer. Those systems need a lot of maintenance and you got to make sure that you are staying up on that. Those have been a big one this year. You're absolutely right on plumbing as well. But the third thing on there is water penetration of things like roofs and siding. You want to be on top of those things even if you have a hard time getting a contractor, even if it's the middle of a pandemic, you don't want to leave those things unaddressed and you want to make sure you address them immediately.

Deidre Woollard: Another thing that's happening right now as we're taping this, we're almost in the midst of more school lockdowns. Certainly, this year our homes have become schools and offices and one-stop everything. We haven't been out a lot this year. Is that changing the way people remodel? I've heard about things like Zoom rooms becoming trendy. Is that something that is showing up?

Mischa Fisher: Yeah, that is the biggest, loudest signal of what we're seeing from the chaos in the marketplace. What we're looking at and seeing is specifically that the reasons for the remodeling or changing and then how people are funding it. That's really the impacts I think been the most pronounced. You talk about Zoom rooms, so that would be a great example where somebody might just repaint a wall and put in some lighting to shape the overall visual impact of the space. But I think what's really fundamental is in the past we've looked at how people are spending and why they're spending. You see a lot of reasons like things would beat up. They wanted to just update the look of something a little bit, or they wanted to get a return on their investment. They wanted to do something. This year it's making the home better suit their lifestyle needs, is the overwhelming number 1 reason why people are remodeling. I think that that represents a fundamental shift in the way people view housing as an asset. It's no longer strictly an asset, it's now a good that you use on a repeated basis and you want to make sure you're getting a lot of enjoyment, a lot of utility out of these things. I think that's the newest trend, is seeing that expand across the marketplace in terms of people saying, hey, I might have to be home a lot. I should make sure that this home isn't just something I view as a strictly monetary thing, but as a thing that I really derive a lot of enjoyment out of. As a result of that fundamental shift in the reason why people are doing it, that also means that there's a lot of funding that's being shifted around too. Because if you have a different reason for doing something, you might find it a little bit differently. When we went out and asked people, "Did you take some of what you'd normally spend on restaurants and spent it on your home?" Fifty-two percent of people said yes. Fifty-two percent of the projects being completed were because people were shifting restaurant funds into their home. Similar for vacations, we saw about 48 percent of people say they were shipping vacation funds into their home. About a third of people shifting commuting budget. A lot of people might have spent a couple of thousand dollars this year on parking, and gas, and depreciation on vehicle or on train tickets or on anything like that, bus tickets. It said people are spending that on their homes because you're no longer driving into work. Maybe you put that money into redoing the flooring and some lighting and new paint for your Zoom room. That I think is the biggest fundamental shift in what happened over the last 12 months.

Deidre Woollard: Interesting. That's really profound what you said about the idea of the home becoming, it's almost like a work tool because we've thought of our cars as a work tool because of commuting. Then it becomes a thing where if you're entertaining clients and you have a car, you don't really think of your house as part of your work life. But now, this year with Zoom and everything else that's become part of the work-life. I'm wondering too if as people are looking for houses, that they're thinking of houses through that lens as well. That's another reason to have a Zoom room, might not just be for the person who's using it now, but it may become an asset to the person who buys it next?

Mischa Fisher: Yeah, exactly. It changes the relationship, I think, on a pretty deep level. Typically, in finance, we're used to just thinking about the balance sheet, not the more emotional, more romantic aspects of it. But that has been, I think, one side effect. When people are able to, if they're able to convert these spaces, that's pretty profound.

Deidre Woollard: I noticed one thing in the report is that millennials are spending more on home improvement. I was wondering if that's because they're becoming new homeowners or if this generation is becoming more interested in home improvement as they age and maybe have families. What do you think is driving that trend?

Mischa Fisher: I think there's a lot of things driving it. As you said, millennials are the number one spenders, we're seeing, average spending close to about 10,000 bucks per millennial households. There's a couple of things going on. One is peak child having years, the average millennial is now in their early, mid-30s. So you're seeing peak demographic demand as it were that requires you to have a kitchen that works for you, and bathrooms that work for you, and bedrooms that work for you, and outdoor space that works for you. All those things, if you're having kids. On top of that, the housing stock, as you said, is significantly older than it has been for prior generations. The average house is just under 40, and so millennials who are now going through that period where they are the number 1 home buying group, are buying all these old homes that need a lot of work. You've got the demographic piece that is driving it. You've got the underlying asset piece that's driving it. Then the third thing that's driving it is the cultural piece, which is something that sometimes is easy to lose sight of because it's harder to quantify out of on an Excel sheet. But culturally, millennials are growing up with a bigger focus on design, aesthetics, cooking as theater, health, sustainability. All of these things are ingrained into the millennials' psyche in a way that hasn't necessarily been for other generations at that stage of life. That is, of course, also going to shape buying behavior pretty dramatically. If you combine the culture, the asset, and the demographics, that's I think why we're getting so much spending from that cohort.

Deidre Woollard: Interesting. The culture, do you think that's partly also the Instagram, social media effect? I know that now it's a thing that when people move into a house, instead of having a house warming party, I've seen people have a house warming photo shoot. I think there is that, the millennial generation tends to want to share their house in a way that maybe previous generations didn't.

Mischa Fisher: Yeah, exactly. I'm reminded of the old Simpson's joke; Marge picks up a magazine off the coffee table, and I think the magazine was called Homes Nicer Than Yours, so there's always been that element there. But the millennials, I think there's a bigger focus on the immediacy of showing off a space and communicating visually. That drives it in there too. Again, that's going to interact with, what are people trying to show off? They're trying to show off the design aesthetic, how functional it is for cooking, what a nice visually, pleasing space it is, maybe energy-efficiency, some aspects of sustainability, home workout room. Any of those things are all going to be worthwhile for the Gram, for sharing on social media.

Deidre Woollard: [laughs] Interesting. I've heard different schools of thought on whether or not millennials are more interested in turnkey homes or more interested in becoming fixer-uppers by having a project. Are you seeing anything about how that shakes out?

Mischa Fisher: What we've seen is that millennials are less DYI inclined than one might think. I think what goes on though, is that it's a very high variance generation. If I think about my father's generation, everybody from his age cohort knows how to do some things around the house. If I think about the age cohort that I'm in, which is on the older side of millennial land, the people who want to do that stuff, know it and know it really well even if it's not their profession. But there's a lot of people who don't want to touch it. The average, I think for millennials is, slightly less DYI inclined than the older cohorts, but you've got this really high variance, this really high range in possible skill sets of people who want to engage in those things. What I always recommend is, if you want to do something yourself, if you've got the time and the available equipment, the tools, and the urge to undertake these things, go for it. Don't mess around with say anything that's going to jeopardizing life or safety. Don't mess around with your boiler, or your plumbing, or your electricity. Then for the other stuff, just focus on the things that you want to and do. I'm classic "shop out what I want to shop out for home services", but then if I want to make something or DYI, and I'll do that. Like making a walnut side table, that's a lot of fun. Redoing flooring, much less fun. Pick and choose what you want to do. Flooring tiles up against the wall is a real pain and I'd much rather have a pro do that. But making a bedside table out of walnut is a lot of fun and it's rewarding. So pick and choose as it were.

Deidre Woollard: I think that's a really good point because I think a lot of people will see the YouTube videos and think, "Oh, I could try that," but no. I think plumbing and electrical, that's really good advice. Just don't try that stuff yourself.

Mischa Fisher: Yeah. Heating and cooling too, because those systems are pretty complex and you don't want to have cooling fluid go all over the place because you mess something up.

Deidre Woollard: Exactly. All right. That is a really great place to take a break. [MUSIC] We hope you are enjoying this and every episode of Millionacres Podcast. If you have a moment, we'd love to hear from you. Please visit Millionacrespodcast.fool.com, and tell us what you think of the podcast so far, what kind of content and guests you'd like to hear, and what else we can do to help you grow smarter, happier, and richer through real estate.

We're here with Mischa Fisher, Chief Economist of HomeAdvisor, and we're talking home remodeling and best renovation investments. Mischa, I want to ask you, we mentioned before bathroom models are very popular right now. I want you to settle a debate I've seen, which is whether or not people should remove the bathtub in a bathroom remodel. Because I've seen some people put in those larger showers. Some people are saying that's a fad, it's a bad idea. What do you think?

Mischa Fisher: I think like a lot of things, it depends. That's a very unsatisfying answer, but it can be if you think of it. Removing it or not removing it, one of these age-old debates. Werewolves versus vampires of home remodeling. I think if you've got a space that you are planning on selling to or renting to families that have small kids, they probably need to have a bathtub. You don't want to really remove that. That's a deal-breaker. If you've got a space that's serving a different purpose, if it's in a space in a trendy part of town, and let's say, if we're talking about an audience of people who are renting out properties, I think it's less important unless it's a really nice tub. If it's really nice tub that somebody can put on Instagram with a nice window and stuff, then keep that in there. But if it is just your standard vinyl, fiberglass, builder-grade tub in an apartment that you're renting out, say on Airbnb as a trendy location thing, then it's less important. Maybe consider throwing in a European style wet room or something like that, something that has the novelty. It really depends on what you're using the space for. If you're using it personally for yourself and you're not thinking about the finances, then whatever works for you. If you're planning on selling the house you're in, then think about, is the buyer going to be somebody likely that has small kids? In which case, they're going to want a tub. If your buyer is not going to, then I think it's a little less important.

Deidre Woollard: Well, that's another point that's important too, is I think that sometimes when people make a renovation, they make it for themselves and they don't necessarily think about whether or not it's going to fit when they sell it if they're going to get return on investment. Is that something that you feel like people should really pay attention to? That anything that they do should also have value when it becomes time to sell, even if they're not necessarily flipping or turning it into a rental?

Mischa Fisher: I think if you're not flipping or turning it into a rental, it's a little bit harder. You should think about whether or not you get enjoyment out of the thing you're putting in. If you're planning on selling it in 15 years, it doesn't matter that you can't recoup every penny that you paid for a nice bathtub, if you really want a nice bathtub for the next 15 years. That is, I think, one of the things that COVID has changed, is that people are a little less focused on ROI for their own purposes and more focused on, is this something that means a lot to me? If you are thinking about strict ROI, either you're renting it out, you're buying a place to rent out or you're flipping things, then you just have to always remember, you are now the seller of whatever you're spending. If you can't sell somebody on that nicer grade of tiles, you're not going to get the return and you probably shouldn't do it. You can only get what you can sell people on. If people are willing to pay effectively two dollars a square foot for vinyl versus $10 a square foot for some really nice rare stone tile, don't put in the $10 a square foot one if you can only get the two dollars a square foot one back on your return. You always have to check yourself. When you go shopping for these things, it's easy to get carried away with those nicer amenities for a space. But think about who your customer is. If you are selling it or renting it out, flipping it, whatever it is, you have to really think through who your customer is and whether or not they're willing to pay and if they are, and if you need to, market that. If you can market somebody on the nicer upscale thing, then by all means go for it. But you just have to make sure that in the running of the business, that is your house flipping, you're actually thinking about your fundamentals.

Deidre Woollard: Yeah, that's a very good point. It is very tempting if you're in Home Depot or Lowe's and you're looking at all of the different options and everything looks so attractive. Especially, when you're thinking about per square foot, it doesn't seem as much. You'd think, "Oh, two dollars versus five dollars," that's not very much money, but then [laughs] you have to average that out over the entire spend there, so it gets tempting.

Mischa Fisher: Yeah, you're exactly right. Those cumulative amounts when you look at building materials, everything seems so reasonable until you start multiplying it out by how much you need, and then when you multiply it out by how much you need and you realize that that extra two dollars or three dollars a square foot is going to cost you an extra couple $1,000 on an average size room, that's where you can get caught off guard where you lose out on the benefits of something like house flipping or renting out a property.

Deidre Woollard: Exactly. So I wanted to talk a little bit about outdoor space. You mentioned before people obviously couldn't go on vacation this year, so they invested in their outdoor space. I've seen some people do outdoor rooms. In your report, what are you finding that people are investing in and what can investors learn about this in terms of how they configure outdoor space?

Mischa Fisher: The number one thing that people are doing in terms of outdoor space is putting in some landscaping. The lesson there for investors is just doubling down in what we were just talking about in terms of recognizing that you can only get so much value back from whenever you put into something if you are planning on flipping or renting it out. If you look at the most popular project that people were doing, it was landscaping. The least popular among the common outdoor projects was putting in something like a pool, putting in general landscaping, it's like 600 percent more common than putting in a pool, and the reason why is because the average national price for landscaping is about 3,200 bucks is what people spend. Whereas for a pool, it's about 10 times that. As a result, the value play there is very, very different because putting in a pool or putting in some shrubs in a retaining wall, both change the look of a place and the utility, the amount of enjoyment you get out of a place, both of those things change in. But it's pretty hard to make the case that the pool changes it 10 times for the better. If you really want a pool, that's the only way to get one. But if you're looking at value, it's harder. Now, for somebody who is renting out a place in the Sun Belt and all their competitor places that a potential tenant is looking at that have pools, maybe you don't have a choice. But if you are looking in an area where the local market conditions aren't forcing you to pursue something, then focus on the value because that's what we saw people doing for themselves with outdoor spaces, which was almost direct in order of the cost of things, landscaping was the most common because it's about 3,200 bucks. Then you see fencing and porches because they can range from a little bit more to about double that as the average costs and they were not quite as frequent, but still pretty frequent, and at the bottom, you had the really expensive things like in-ground pools.

Deidre Woollard: Well, I know that the ROI on pools, in general, tends to not be that great over time. But like you mentioned, if you're remodeling in the Sun Belt or somewhere like Southern California, you probably have to have one.

Mischa Fisher: Yeah, exactly. Just the ROI for one for yourself. Just think about the cost of carrying any asset. The cost of carrying a pool as an asset is pretty steep. You can probably roughly budget 10 percent of your installation costs per year in terms of maintenance, and energy and heating, and all that thing. That makes it a pretty expensive proposition for a lot of people if you're thinking just on the financial aspect of it.

Deidre Woollard: Exactly. So in talking about going too far with the renovation, we talked about not putting in the most expensive flooring. How else can people stop themselves from making those decisions? How can they better research and be more prepared so they don't make that kind of costly mistake.

Mischa Fisher: I think people need to do two things. The first is research the real cost of what you're exploring, so not just your aspirational cost, not just glancing at the relative cost of something per square foot, calculate the actual amount of surface area that you need to cover if you're doing a remodel of a siding, flooring, painting, roofing, anything. Think about the actual realized square footage that you're going to do not just the comparative cost per square foot, which is going to mask it pretty considerably. Then add in however how much you're going to have to add for waste, which is probably an extra 10 or 15 percent on top of that. Then think about the cost in time and a realistic implementation schedule. Make sure if you're getting a contractor, look for someone who has good reviews and can hit their deadlines. That's a big thing because if you're planning on renting a place out or flipping it, time is money and the more amount of time you spend with the project undergoing into renovation rather than serving its purpose of, say, being a rental property, that cost you additional money. So make sure you factor in all of the real costs and then check what your market is in terms of who you're renting it out to. If you're planning on doing an Airbnb property that's not in a highly trafficked area, recognize that putting in a $10,000 bathtub probably isn't a good idea because you're never going to get the Airbnb renters that are willing to pay for that. That is location contingent. So you want to make sure you're being prudent about the choices you're making. Likewise, if you're in a nice area, don't go all cheap because if you're planning on say, Airbnb or renting something out, if you're dealing with a renter in that area that is willing to pay more, you might be hurting yourself if you've made a space that's not very pleasant to be in. Balancing the real, actual costs in terms of what it's going to actually cost you, materials, square footage, time, against what your actual benefit is. What is the likely selling point of a property or what is the Airbnb nightly rental rate or what is the monthly rental rate if you're renting all those things out. Be realistic. You can deviate from the market price a little bit, but a lot of it is determined by location. Don't be overly optimistic about what you can get as a return on a place.

Deidre Woollard: That's really interesting because there is that difference between if you're investing for a short-term Airbnb, you're going to have to put in things that will appeal to someone who wants a vacation home, they want something luxurious for the night. Whereas if you have a long-term rental, they don't necessarily need to have that wild factor. Certainly, if you're doing a flip, then you have a whole another set of concerns because you want it to be nice enough to be a decent flip, but going too nice definitely can price you out of a certain neighborhood. There's a lot to consider based on what your end result you're expecting to pay.

Mischa Fisher: Yeah. Exactly. The other thing is if you're flipping or doing an Airbnb, remember you're taking a bunch of capital and tying it up in a non particularly liquid asset that does have some cost of acquisition, that does have a carry cost. If you're not smart about these things, you might still make a profit. You might. You don't have to be the world's shrewdness businessperson to necessarily make a profit. But how much profit? Because on a relatively risk-free basis, without all the effort and time and nuisance and headache and risk, throw that money into something that's more passive and earn a better return. If you're doing all these things, you should be doing it to get a return, that is out-competing what you could get for the same amount of effort elsewhere. Being intelligent about these things is where that return is. If you're foolish about these things, yeah, maybe you'll still earn a bit of a profit, but you're just wasting your own time if you're not earning a return that's above what you could just get throwing something at your preferred equity.

Deidre Woollard: Well, and also, this year with the way home prices have been going up, it's a year in which it's not that hard to maybe make that property because there's such low inventory, there's such demand for homes. But in a different market, it becomes a lot more challenging. I think this market has encouraged people because we're seeing home prices go up and up and up, but every market ends and this one will too.

Mischa Fisher: Yeah. You can only deviate from the fundamental so long. Real estate across all markets over the last 100 years does not come anywhere close to outperforming equity. I mean, it falls significantly short of it. You can make a nice dividend paying return on real estate if you're smart. But the main thing is just being really smart about it. So think about your location, think about your other fundamentals. Right now, you end up with a wash. Markets like to equalize and so even though interest rates are low, prices have gone up enough that your savings have been wiped out by low-interest rates. So the market equalize pretty quickly on that.

Deidre Woollard: That's true. We talked a little bit before about the impact of COVID-19, about finding contractors right now. I know in the report it showed people really want to know from their contractors that they're being safe. What kind of safety measures should people be looking for from their contractors?

Mischa Fisher: A couple of different things. Obviously breathing is a big one. But the other things are, I think, people want to mostly see that a contractor is taking it seriously, that they're not just putting one thing on as theater. That they are really working it into their business process. Are they encouraging their employees to be responsible on their spare time? A contractor can convey that. That's a big deal. If they have people working together in crews, they're not swapping crews out. You should form a bubble among your different crews. That's another way to do it. Overall sanitation, flexibility around scheduling in the house. It's not just necessarily about one piece of PPE, it's about conveying the seriousness in terms of people taking it gravely serious. For some people, COVID is just a cold, but for way too many people it's been fatal. I think people just want to see that the contractor is taking it very seriously and not writing it off.

Deidre Woollard: Yeah. I think that's a really good point. The point about a bubble is true too, because when you are doing larger projects, sometimes there's subcontractors coming in and out, so there's a lot of activity when a house is being redone.

Mischa Fisher: Yeah. This is circling back to one of our first points. This is what's exacerbating a lot of the supply constraints because it takes contractors to do things. But right now, we want that to be the case. We want them to take more time to be careful about it, to be safe, and encourage all their employees to take it seriously as well.

Deidre Woollard: Great. As we wrap up, I just wanted to get some points from you on what you're seeing for the next year. Do you think that some of the trends that we're seeing right now are going to continue? Is there anything else that's emerging in terms of remodeling that's becoming more trendy?

Mischa Fisher: I think that we will see a really strong couple of years for remodeling for a couple of different reasons. The first are these demographic reasons that we've seen. The second is that as much demand as there is right now, people aren't getting jobs completed because prices have gone up for supplies, because it's hard to get contractors, because people are concerned about the health effects of COVID. That demand did materialize as a result, but it's not being satisfied yet. We'll see some of that offloaded onto follow up years. What we'll also see is an equity effect because home prices have shot up. People who already own homes pre-COVID have suddenly seen their home value rise faster than they were expecting. That's more equity to throw into a potential remodel. The overall awareness around the home is just a thing that we've all gotten out of having to shelter in place. That's just a permanent preference that's going to appear. But in addition to that home equity effect for people who are already in homes who are getting that added benefit, there's also the added effect of mortgage refinancing, which is additional. Your house price has gone up and then you've probably also been able to refinance a lower mortgage payment. There's two different areas of spending that had been opened up for all the people who are already in homes pre-COVID, for people who are now jumping into the market, and we have seen about a three percentage point increase year over year in home-ownership rate from this time last year, which is huge. It went from about 64 percent to about 68 percent, which is a big, big change in what's normally a pretty stable series. As a result of all those new people, some of them are: A, they're able to jump into the market, so they'll just be new consumers demanding this stuff. But also because prices are rising, it's pushing people down the quality chain in terms of what they can afford. If a house that's a fixer-upper that you wouldn't have normally looked at but now it's in your price point because the nice house that wasn't a fixer-upper has been priced out, you're going to get that fixer-upper and you're going to remodel it. The vacancy chain that started when people start buying and selling homes is going to create a pressure to renovate the more beat up parts of the housing stock. I think that we'll also see a lot of demand there. Across all those things, I think we're going to see a lot of demand. That's all just compounding with the normal trends around demographics that are pushing in and around the constant changing and preferences which you alluded to. People want to get that trendy backsplash. They want to do the trendy accent wall. These things are constantly changing, human preferences are infinite. We always want to see new things and that will also be continuing to interact with all these other pressures. If you're in the remodeling business, there's always going to be demand for you.

Deidre Woollard: Well, that brings up one final question that I want to ask because you talked about trends. We talked a little bit about the bathroom trend. Certainly, you mentioned backsplashes. Farmhouse sinks have been big in recent years. We saw granite go in and then go out and then go back in again. What do you tell people about trends and how much do they pay attention to that, especially, if they're renovating to flip or for a rental property?

Mischa Fisher: I think you cannot ignore trends. So much of the buying experience that people go through is about how something feels, how it looks, how much you want it. So much of that is just nailing whatever the current trend is up the time. It can feel arbitrary, like you said, granite coming in and then out and then going back in again, but human preferences are. There's an old Latin phrase, de gustibus non est disputandum. In matters of taste, there can be no dispute. Meaning that people have different preferences and the phrase is meant to elude people who have bad taste. But there really is no such thing. There is just taste and it evolves. That's just the way humans are and how we want to consume things. If you are in the market of housing, whether or not as a flipper, as a renter for short-term or a renter for long-term, or just an owner who wants to consume, none of those segments of being in the market allow you to ignore what trends are at a given time. Trends are almost everything, not quite but they're almost everything. Some of it it's not just preferences too. There is also a lot of innovation and technology. You can now get some very impressive smart appliances around the house. You can actually change the utility of a window or lighting and all those things by actually having it do a lot of the automated work. If you look at heating and cooling, there's been a lot of innovation in that space. Switching from a traditional hot water tanker to a tankless system that has a circulating pump that keeps the water always warm whenever you want to use it. All of those things, I mean, that's not just preferences. That's a lot of utility and energy savings. That's a trend in some way, but it's still not something you can really ignore. [MUSIC] Yeah, so I think people just have to pay attention.

Deidre Woollard: That's a really good point. Well, thank you so much. This was a lot of fun and some very interesting subjects. Just a reminder for listeners, you can find out more about home renovations on Millionacres. We have some articles on whether or not certain renovations are worth it. Definitely check out homeadvisor.com for the re-modeling report and for other information on all things home. Thank you.

Mischa Fisher: Thank you. Good to be with you.

Thank you for tuning into the Millionacres podcast. I hope you liked today's show. If you enjoyed this episode, please consider subscribing through your favorite podcast provider. If you have any questions, please feel free to drop us a line at help@millionacres.com. Stay well and stay invested. People on this program may have an interest in the deals, offerings, or services they discuss, and Millionacres or The Motley Fool may have a formal recommendation for or against. Always consult a certified tax professional before acting on tax advice and do not buy or sell assets based solely on what you hear.

[MUSIC]