Observations on Remodeling’s Q2 Economic Outlook

I've been spending too much time over the last two months trying to figure out the tariff situation. It is a nuanced and moving target, but I will try to put it in perspective for remodelers. Let me start with the positives for the residential remodeling sector—it will be a relatively short list, but I think there are a few positive things to consider. 

The Tariff Situation Isn't as Grim for Remodeling as It Is for Others

As things settle in, construction in general—and remodeling more specifically—will not be as impacted by the tariff situation as many other industries. There are a lot of other industries in our economy, as well as a lot of domestic production of construction-related commodities and things that rely less on imports, mainly imports from the targeted countries, than other industries. So, I think construction will get through this period better than some.

Investor Caution Is Helping Mortgage Rates—Slightly

With all the uncertainty, a lot of investors are avoiding the equities market, avoiding the stock market, and putting money into bonds. That looks like it's having some modest positive impact on long-term rates. Mortgage rates have decreased slightly—maybe a couple of tenths of a point over the last couple of weeks. They're probably not likely to go down a lot more, but also not likely to go up much in the coming months.

The "negatives" list for the residential remodeling sector is a bit longer.  

Material Prices Are Rising—and Getting More Unpredictable

Obviously, the higher cost of building materials and building products is number one. Also, there is a lot more volatility in pricing. So not only are prices going to be higher, but they're going to be much more volatile moving forward as tariffs kick in and we get different responses. Related to prices and volatility are supply issues. I think we'll see something like what we saw during the pandemic—maybe not quite as bad—but with a lot of disruption of supply chains. Longer lead times on specific products may be with us for a while.

Clients May Become More Hesitant, Especially on Large Projects

Some remodelers have told me how customers react to this, which may be even more critical than how we, as an industry, are reacting. I'm guessing we are seeing—and will see—a lot more nervousness about proceeding on projects, particularly larger ones. Some of our clients have more of an off-again, on-again attitude moving forward.

Though I haven't seen it yet, I've heard that there may be more difficulty getting financing for projects in general. That hasn't really materialized to a significant degree, but I think it's out there.

Remodelers May Need to Change How They Operate

Let me end with a little speculation on likely changes we're going to see moving forward, especially focused on remodeling operations.

• Number one: more front-loading of materials by contractors. They're nervous about how long it will take and what the price will be, so there's an incentive to lock it in now. That puts a lot of pressure on liquidity—we're paying for stuff well before we need it—but the uncertainty is causing a lot of firms to move in that direction.
• Number two: I'm not sure we're going to see this in remodeling, but when I talk to architect members and non-residential contractors, they're talking about a shift toward different delivery models—more focus on design-build on the non-res side, and what they call "construction manager at-risk." The purpose is to get everyone together early—designers, customers, contractors, suppliers—so they're all aligned and trying to resolve issues collaboratively from the start.
• Number three: related to number one, I think we're going to see more warehousing of materials. Get them while you know the price, even if it means sitting on them for 6, 9, or 12 months until you need them. I think we'll see more of this on the non-residential side, but some of it will be in remodeling, too.

We Don't Know What the Endgame Is—and That Matters

Let me make one final point. I think those of us looking at the situation are trying to figure out what the endgame is. What's the purpose of putting all these tariffs on imports? The problem is we get two different answers.

Number one is an America-First approach: we want to ensure U.S. manufacturers are competitive. We want to put walls around our borders to seal off imports—or if not seal them off, make sure they're priced aggressively enough that we can be competitive internally. To do that, you set tariffs, have a lot of transparency, and say we're keeping them forever. That gives investors in U.S. manufacturing confidence about the long-term environment.

The other motive we've heard is the opposite: we want to use tariffs to negotiate with other countries. That's the reciprocal tariff argument. Ultimately, the goal is to lower tariffs on both sides—ours and theirs—so we move toward more free trade. In that scenario, we'd eliminate most tariffs entirely.

Those are opposite goals, and quite frankly, I don't think we know how this is going to play out yet.