Home Projects & the Pandemic
Friday, July 10, 2020 from Floor Covering Weekly
While the millions of newly unemployed persons are likely focusing on smaller, less expensive home projects, households who have not seen their incomes significantly affected have been more inclined to take on more major projects. And given that many of their typically budgeted expenses such as trips or family vacations are unlikely to happen this year, there is more of the family budget that can be devoted to home improvements. Coupled with the fact that many households have more time to spend on these projects, there is the potential for a lot of home projects.
And, in fact, recent consumer surveys undertaken by the Farnsworth Group and the Home Improvement Research Institute show that many households have been undertaking home projects in recent months, and rather than tailing off, the numbers have kept growing. Most of these projects are undertaken by the homeowners themselves rather than going the route of hiring a contractor. When asked why they are doing the projects themselves, more than 80 percent of respondents mentioned that they have more spare time to undertake these projects. Over a third responded that saving money by not hiring a contractor was a factor for undertaking a DIY project. However, one in five households was motivated by not wanting a contractor in their home during these uncertain times. While it difficult to know which of these home improvements would have happened regardless of the pandemic, economic data suggest that activity has been surprisingly strong. Sales at building material and supplies stores nationally between March and May of this year were about 8.5 percent higher than they were for the same three months in 2019.
Does this mean that the home services, repair, and improvement industry is going to defy economic gravity and see growth during this recession? That outlook is no doubt premature. There is still a long way to go before the economy fully recovers, and this initial burst in spending on home projects may well lose momentum. Current spending levels have likely been boosted by expanded unemployment insurance benefits as well as the result of small business loans under the Payroll Protection Program which provide incentives to for businesses to keep their employees on their payroll during these weaker economic times. Both programs are likely to end soon. Recent economic research has studied the spending behavior of unemployed workers who exhaust their unemployment benefits. It is probably no surprise that once these benefits are exhausted, household spending declines by 20 percent to 30 percent on average. However, spending declines differentially for different categories. Unfortunately, at the top of the list of cutbacks is spending on home improvement projects, followed by spending at department and discount stores. Categories where households are hesitant to cut back include insurance payments, utilities and telecom (cell phones, internet, etc.). Often home projects are considered discretionary, and therefore put on hold if personal finances are disrupted. So, effectively, near-term spending on home projects will depend on how long this economic downturn persists.
Kermit Baker is the senior research fellow for the Joint Center of Housing Studies at Harvard University. He may be reached via e-mail at [email protected]