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Despite small businesses taking a hit—at the height of the pandemic in mid-August 2020, about 98,000 small businesses in the US had closed permanently, according to Yelp—not all industries suffered.
Contractors, including home renovation and maintenance companies, have seen business boom.
This might seem counterintuitive, especially because during economic downturns or periods of uncertainty, households usually tighten their belts and spend less.
Yet, the average cost for a renovation or remodel project stands at $46,641, with most homes ranging between $18,158 and $76,140, according to July 2020 data by HomeAdvisor
Let’s look at a few of the reasons why this small business category has thrived during the pandemic and look at how things will shape up as COVID-19 winds down.
Work and school from home
Clearly, the decision to renovate or remodel comes from the fact that families are staying home, all together, all at once. As such, the need for separate, enclosed private spaces for work and school are needed.
However, it’s not just the conversion of a bedroom or garage into an office that’s responsible for the jump in remodeling projects. Even kitchen and bath projects witnessed a 40% jump in demand, according to online remodeling platform Houzz. Because more people are cooking and eating at home, kitchens have become even more the center of family life.
If a total or partial renovation is too costly for some, buying new furniture has provided yet another solution to home improvement. According to Yahoo Finance, retail sales in the furniture and home furnishing category skyrocketed 158% in September 2020 from the lows reached in April 2020, when the pandemic was settling in.
Interest rates at record lows
Of course, the big question is: where is the money to pay for remodeling projects coming from? Several factors are at play.
For one, people have been saving money by not eating out, shopping, or going on vacation. As such, many households decided that during the pandemic, they’d rather add that value back into their homes.
The other factors driving home renovations are record low interest rates and the relatively high amount of home equity many homeowners now have. Despite an economic downturn during part of last year, home prices continued to soar.
Just over 15 million residential properties were considered equity-rich in Q2 2020, meaning mortgages on those properties amounted to 50% or less than the value of the home, according to ATTOM Data Solutions. That is 27.5% of all mortgaged homes in the U.S., up from 26.5% in the first quarter.
As such, equity-rich homeowners decided to put even more money into their property via a home renovation.
Slowdown in the construction industry
It’s important to note that while home renovation and maintenance companies have experienced a boom, the industry that develops, designs, builds, and delivers new homes has suffered considerably.
According to a survey conducted by the Associated General Contractors of America, the largest trade association serving the construction industry, 78% of construction firms reported project delays or disruptions due to the pandemic.
The biggest reason, at 42% of responses, was a shortage of construction materials, equipment, or parts.
Well, when one industry suffers, another industry prospers. It stands to reason that if new home inventory is down, families who otherwise would have purchased a new home realize that that is not an option for the time being. As such, they are staying put, and using funds on a renovation.
Even if families decide to move during the pandemic, they would be moving into a resale, which probably needs some remodeling.
A look to the future
What goes up must come down: home prices cannot continue to surge forever.
Further, interest rates cannot stay rock-bottom, eventually making HELOCs less attractive.
Additionally, with rising interest rates, home sales that had enjoyed a meteoric rise will slow, and prices will stabilize. While this will be good news for the overall market, does that mean that spending on renovations, remodeling, and maintenance during the pandemic will have been a waste in the long run?
Not at all. Renovations and modifications improve the quality of the home and the quality of the lives of the individuals inhabiting the home. For that, there can be no assigned dollar value. For the time being, home remodeling and maintenance companies can continue to enjoy pandemic-related opportunities and perhaps even seek funding to expand their business moving forward.
While no one can predict when the pandemic will have completely passed, all small businesses, including contractors, can profit by taking advantage of unexpected trends.
Related: 2021 Home Buying Trends in the U.S.