Fourth Quarter Prices Released

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On 10/2/2009 we uploaded the most recent pricing data. All subscribers should have received a notification email from RemodelMAX. Some of the pricing trends that RemodelMAX chose to highlight are as follows:

  • Drywall costs have slipped lower during the 3rd quarter hitting all time lows.
  • Roofing costs have declined after the stabilization of oil costs.
  • Plywood costs have risen as much as 20% in some areas.
  • Dimensional lumber cost have incresed 10-15% during the 3rd quarter.
  • Fiberglass insulation costs have returned to early 2009 costs after sharp mid-year increases.

Here are some other relevant articles:

Remodeling Market Down, But Remodelers Expect Recovery

By Jonathan Sweet, Senior Editor
August 1, 2009
Professional Remodeler

Two-thirds of remodelers say their market is worse than it was a year ago, but at the same time they’re seeing some relief on the horizon, according to the latest Professional Remodeler survey.

Sixty-seven percent of remodelers said their local market conditions have gotten worse over the last 12 months, compared with 19 percent who said the market was unchanged and 14 percent who have seen an improvement. And that’s coming off of 2008, when 50 percent of remodelers had a decrease in revenue from 2007, according to our annual Business results Survey. (Visit www.HousingZone.com/bizresults for more information.)

Remodelers tend to be an optimistic lot, though, and most are expecting things to get better next year, with 57 percent predicting an improvement in the market and only 11 percent saying things will worsen in 2010.

The lone exception to this optimism is the Midwest. Only 46 percent of remodelers there are expecting a better 2010, and 20 percent say the downturn will continue over the next year. It’s the only region of the country where more than 10 percent expect the market to worsen.

Although 67 percent of remodelers say the market is worse now than a year ago, only 11 percent expect it to continue to worsen over the next 12 months. Fifty-nine percent of remodelers in the Northeast and West and 66 percent of Southern remodelers think conditions will improve over the next year.

The results are not that surprising when considering the local economic conditions. The Midwest has a 10.2 percent unemployment rate, tied with the West for the highest in the country, and the Midwest has seen the biggest increase in unemployment over the last year, according to the U.S. Bureau of Labor Statistics. The region also includes several states hit hard by the recession, including Michigan, with it’s national-high 15 percent unemployment rate, and three other states with unemployment of more than 10 percent (Illinois, Indiana and Ohio).

Consumer confidence is key

The biggest factor in improving the remodeling market will be increasing confidence, remodelers say.

We asked remodelers to rank several factors on the importance in driving a recovery in their local market. Consumer confidence topped the list, with nearly 90 percent of remodelers ranking it in the top three. Coming in second was “Consumers’ inclination to spend rather than save,” followed by availability of financing, increased housing values, higher employment and fewer foreclosures. Not surprisingly, these are all factors that drive consumer confidence.

We also separately asked remodelers what was needed to turn their market around, allowing them to provide any answer. More than a third listed some variation of consumer confidence. The only other answer that was close was the more than 10 percent who responded with some sort of complaint about the government.

Smaller jobs, fewer leads drive downturn

Anecdotally, it’s not hard to understand why so many companies are struggling this year. Take fewer leads, a lower close rate and smaller job sizes, then toss in increased competition in many markets and you’ve got a recipe for disaster.

The numbers back the stories. Most remodelers are seeing significant drops in average job size. Nearly half of remodelers reported a “substantial” drop in average price tags from a year ago, and 77 percent saw at least some decrease. Only 11 percent of firms had an increase in average job size over the last year.

Leads are down for 72 percent of companies, compared with the 15 percent of companies that are getting more leads. And once they get those leads, remodelers are finding it harder to close the deal, with 64 percent saying their close ratio has dropped over the last 12 months (although 13 percent did report higher close ratios).

Many remodelers are also seeing more competition. More than 40 percent of companies reported an increase in competitors. The recession also seems to be knocking some companies out of the market, though, as 36 percent of firms said the number of their competitors has decreased.

Of those companies that are facing increased competition, 68 percent are dealing with new home builders; 57 percent, former trade contractors; and 53 percent, former employees of new construction and remodeling firms. Ten percent said they are seeing increased competition from other sources, such as unemployed DIYers and college students.

What will it take to change your market?

378 remodelers with 2008 revenues of more than $500,000 completed the survey online. Data were collected June 8 to June 27, and participants were chosen from a random sample of subscribers to Professional Remodeler magazine and eNewsletters.

We asked remodelers, “What’s the most important thing that needs to happen to turn your market around?” Here’s a sampling of their write-in responses:

“Get the government out of our business.”

“The media and Wall Street need to instill consumer confidence to American people. There is way too much doom and gloom out there, and people are very nervous.”

“The national economy must stabilize and turn around and start growing.”

“Consumers need to feel good about their current and immediate future financial condition and employment outlook. Until confidence improves, even those with the cash aren’t going to spend on anything but the necessities.”

“The government needs to have leaders who do what is good for the country instead of political gain.”

“Our market is not bad.”

“[We] need to have more large companies to employ more people.”

“The builders need to go back to building houses. They don’t know how to manage remodeling clients and therefore price their jobs way too low.”

“Consumer confidence seems to be the key. People appear to be interested in renovations; however, they are waiting to see if more bad news awaits us. Most of our work is done through discretionary spending. On a political note, I think it would help if the minority in Congress would try to work with the majority and vice versa, showing a united approach to the problems.”

“No turnaround [necessary]; it has never been that bad.”

“Everyone should get busy doing and stop waiting for others, i.e. the government, to do it for them!”

“The financial sector has to improve a lot. People have to get their investments back closer to what they have lost in order to start spending on their homes.”

“Unemployment needs to stop increasing, and home values need to stabilize. Also, home builders, tradespeople and unemployed professionals need to stop ‘trying their hand’ at remodeling.”‘

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Survival of the Fittest, Revisited

Survival is more than just hanging on. It requires a team effort, a return to sound business fundamentals, and an ability to respond to a changing market.

By Mark Richardson
September 2009
Remodeling Magazine

Since last year’s “perfect storm” of banking crisis, stock market crash, and housing foreclosures, I have traveled across the country speaking to thousands in the remodeling industry about “The Remodeling Outlook,” which looks both at the fundamental demographic of our industry and at changes that have taken place over the last few years.

Everywhere I go, I get questions that reflect the pain remodelers are feeling as well as their thirst for certainty. Many ask, “When will the market improve?” “How do I get the phone to ring?” “Will my business survive?”

A few years ago, the word “survival” was not in most remodelers’ business vocabulary. Most had experienced double-digit growth for so many years that they lost sight of the ingredients needed for a business to be healthy.

These basic ingredients are the same today as they were when I wrote about them more than a year ago, but this time the perspective is that of someone who has seen the scars and bruises that many have suffered in the past year.

Mindset

All businesses today need the right mindset. Given what we have experienced over the past 12 months, this mindset needs to begin with the notion that survival will be a team effort, not something carried on the back of the owner or leader. Business owners who are working their way through this muck are not acting shepherds leading sheep, but instead have made survival a team priority.

Another critical element of right mindset is maintaining a positive attitude. In times like these, a negative attitude is like a cancer that will eat away at a business. Work ethic is also essential. The status quo isn’t enough anymore, and success may require working longer hours and some weekends.

Finally, the right mindset depends on being more creative and flexible and less dogmatic. Processes and systems are important, but don’t let them be a ball and chain that pulls the business under.

Basic Business Fitness

To survive this economic hurricane, businesses need to not only bail water when the boat is sinking but steer the boat to calmer waters. Many businesses today are so focused on getting through the week and meeting payroll that they are getting further and further off-course. Their goal is short-term survival, but without a vision for medium- and long-term health.

Finding a balance can be difficult, but as with your personal health, if you don’t invest some energy into staying fit, you will move further away from being in shape. Take time out for a business fitness check up, and then invest 10% of your week into those areas that need attention.

Change

Although change is critical to survival, most businesses are reluctant to change and must be dragged into it against their will. This is a sorry state of affairs, because, as a friend of mine once said, “If businesses are not changing, they will become irrelevant.” Wow, who wants to become irrelevant?

In the remodeling business, change begins with understanding how your client has changed, how marketing strategies need to adjust, and how fundamental business priorities and structure are being transformed. The common denominator among the businesses I have touched during the last year is that they think they are changing, but they are not changing enough.

Change also needs to be managed. The faster and more dramatically you change, the more difficult it will be to get everyone onboard. That means you need a plan not just for the change itself, but for how you will communicate the change and handle the fallout it creates.

Survival requires looking for specific solutions in the context of your clients, your market, your product, and your team. With the right approach, you can do more than just survive in this market you can thrive.

Mark Richardson, co-chairman of Case Design/Remodel, recently accepted a one-year appointment to Affiliate in Housing Studies at Harvard’s Joint Center for Housing Studies.

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