Perilous Prognostications

Making predictions about the remodeling industry is fraught with pitfalls. For one thing, remodeling is a local business. Data is difficult to find, but even when you have it, what’s happening in, say, Atlanta, has little to do with what’s happening in Denver or Chicago. Also, predictions tend to treat huge markets as if they were homogenous communities, but remodelers are concerned about the diverse collection of subcommunities and neighborhoods where they do their work. Plus, given the pace of change these days, a 30-day forecast for one business is hard enough, let alone a year’s worth for an entire industry.

That said, it’s January in an economy that’s struggling to recover amid terrorism and racial and ethnic strife at home and abroad, melting glaciers, and an impending national election. We are living, as the sardonic saying goes, in “interesting times.” So I am throwing caution to the wind and hazarding a guess about four things that could affect remodelers nationwide in 2016.

[1] Rising interest rates: The Fed recently raised interest rates and is expected to raise them a few more times in 2016. Although the Fed increases will be small and aren’t likely to affect mortgage rates as much as people think, it seems certain that rates are trending up, and that’s all that matters. This situation may spur to action people who are on the fence about refinancing their homes, and traditionally, a significant percentage of cash-out refinancing is applied toward remodeling.

[2] Effects of energy tax credits: Remember them? Dec. 31, 2016, is the tax credit deadline for renewable energy projects that are part of the American Recovery and Reinvestment Act of 2009. If homeowners behave the way they did leading up to the deadline for replacement window tax credits, they will wait until the last minute, and that could mean a flurry of activity in the second half of the year. The downside may be that the cash outlay required to fund these projects while waiting for the tax credit may cause people to curtail or postpone spending on other types of remodeling projects.

[3] Tougher energy codes: Some jurisdictions are still using older energy codes—sometimes much older—but adoption of the new standards is just a matter of time. Where that changeover happens in 2016, many of the requirements—such as those around testing, insulation, and mechanical ventilation—will present a real challenge to remodelers who like to do things the way they’ve always done them. The changes will also increase costs, making it harder to sell consumers who have been lulled by the availability of cheap energy into thinking that energy efficiency is no longer an issue.

[4] Tight labor market: With both new construction and remodeling continuing to recover, demand for construction workers will keep on outstripping supply. Other factors may point to a strong year—leads are up, the sales cycle is shorter, project size is up—but without skilled labor, remodelers won’t be able to produce as much as they’d like.

The wild card is the presidential election, which at the moment is unpredictable.

Who knows how the next year will play out, but these four issues are likely to affect most remodelers in 2016