EMMA ROUTLEY/CHRONICLE PHOTO
Stan Simonsen of Creswell’s Cascade Home Center said building supply sales remain brisk.
For the lucky people who are coming out of the pandemic relatively unscathed, a large question looms: Is now a good time to tackle a home or business improvement project that was put off during the lost year of 2020?
Within that question are two disparate tracks of thinking. The first thought might be that because you spent so little last year due to lockdowns and closures, you have more cash on hand than usual. However, the second thought might be much more conservative, and the best course of action could be to defer projects while prices are (probably) artificially high as we come out of the pandemic.
Of course, the correct answer depends on everyone’s unique situation, but my hope in this column is to provide some information to help you make the best choice for you.
First, the undisputed facts. Prices are quite a bit higher than they were pre-pandemic. As has been widely reported, inflation is at a 13-year high, with a significant spike in June, and the Consumer Price Index jumped 5.4% in June as well.
At the same time, however, lumber prices (and other key construction materials) that hit the stratosphere in April and May have come down more than 40% in just this last month.
So, you could wait for prices to go down but get caught deferring improvements in your home or profitability in your business. On the flip side of this coin, you could jump in now with a project that results in buyer’s remorse down the road if the same project would have cost 20%-40% less by waiting another nine months or so for prices to correct.
In such circumstances, perhaps going with your gut is the best answer. While being conservative and waiting to see if inflation truly goes down is a sound strategy – inflation has not been overly problematic in the U.S. since the late 1970s – I’ll refer readers to a saying that I use as a litmus test for action: “The best time to plant a tree was 20 years ago; the second-best time is now.”
Simply stated, if one has money now to improve either of your two greatest investments – your home or business – it might make the most sense to spend that capital to improve these assets. Think of this as opportunity costs. After all, residential and commercial property prices and valuations will most likely continue to trend upward in the coming years.
Instead of trying to time capital improvements for lower inflation, a simple mental calculation might reveal the best course of action for you: “If I redo my kitchen or bathroom today, and I can afford it, would I still be happy with my decision even if prices go down in 12 months?” Similarly: “If I have the cash to spruce up my shop that will help my business become even more competitive, will my profitability suffer if the project costs less next year?”
Stan Simonsen, manager of Cascade Home Center of Creswell, is seeing plenty of activity among builders, even though prices are still high.
“It’s certainly a supply-and-demand dynamic,” he says. “Prices are high because demand for building is so high. Even though a two-by-four I sold last year at $4.37 is going for $8.99 today, builders are still incredibly busy.”
Another factor that might move people toward acting now is the fact that the cost of labor is going up. With businesses still struggling to attract workers, many industries are having to raise wages. This increase, of course, is going to be passed on to the customer.
Recently, wages have increased about 7.4%, which is more than double the normal rate, and they are probably not stabilizing anytime soon. Even if the cost of critical materials such as lumber continues to fall, labor prices might not get any better than they are right now.
Trying to time inflation is probably even more difficult than timing the stock market. If you are waiting until prices fall for raw materials like lumber, you may end up saving money on two-by-fours but spending more on construction labor costs.
None of us has a time machine to go back and complete the home or business improvement project of our dreams before COVID-19 hit. Nor do we have a crystal ball to predict what the future holds.
The second-best choice might just be to do it today.