I’m in the middle of reading “The Demographic Cliff” By Harry S. Dent Jr. and it’s left me to ponder over the future of remodeling.
I sat in on a speaking engagement by Mr. Dent a few years back at the Pacific Coast Builders Convention and he has since become sort of a folk hero of mine.
Dent writes and markets an economic newsletter that reviews the economy in the US and around the world by focusing on generational consumer spending patterns, as well as financial markets, and has written nine books, of which two recent ones have been bestsellers.
Harry Dent has been providing predictions on the economic future for decades and has become one of the most respected people in his field.
Although Dent’s predictions for the next decade aren’t all that rosey, his latest book aims at how we can best prepare for the deflation ahead.
Among other demographics based predictions, he says that we are headed into a recession starting at the end of 2014-2015 and lasting well into the 2020’s. He predicts that home values over the next 4-5 years will take a dip, possibly as much as 35%, and will not recover for decades. He believes that Real Estate will never be the same as it has been in the past.
My first thought was that , if his predictions are correct, it would be a no brainer to sell your home now and get the most value you might ever get out of it. Then invest your earnings conservatively for a few years while you rent in hopes that you can then buy twice the home for the dollar in the deflated market and live happily ever after. Sounds too simple to be true and probably is. If lending adjusts per the economy it may become very difficult for the average home buyer to get a home loan at all.
But I wondered how this might affect remodeling down the road. My Guess is that remodeling will become the dominating alternative to solving your living needs whether it’s based on achieving more functionality , aging in place, adding that in-law quarters, or just general repairs.
Dent also believes that our traditional start up new homes and their attractive borrowing incentives will become a thing of the past.
We’re already seeing this as production builders are not seeing the sales needed, or the profit margins, to support their current projects. He also believes that, as Baby Boomers advance in age, most of the available housing on the market will be from Boomers dying off.
You have to believe that ROI, (return on investment), on remodeling investments will inevitably become less of a priority as more and more people will be resolving to the fact that they are likely to be where their at for years to come if not the rest of their lives.
But on the other hand, maybe as prices level off, you may not get nearly what your home was valued at in years past but the same holds true for what your able to buy at the then deflated prices. Who knows how this will unfold.
What I’m left wondering is how the housing inventory will play out in this scenario. With the dwindling population you have to think that there will be miles and miles of empty homes waiting to be sold or even torn down to make room for more important needs. We’re already seeing this happening in Detroit where homes are being demolished to build parks to combat ridiculously deflating real estate values and decaying neighborhoods.
One thing is for sure, every custom home builder in the country will be jumping on the remodeling bandwagon as new construction in the residential sector all but disappears. Remodel Construction pricing will be all over the board as home builders learn the ins and outs of estimating remodeling projects.
It’s been said for years that any good Remodeling Contractor can easily transition into new home construction but the opposite is far from true. New Home Builders will have difficulty learning the art of blending old construction with new without obvious defects. Not to mention the inconvenience of having to work on homes where people are currently living. I’ve joked in the past about how this often equates to overhauling the engine in your car while driving down the freeway.
So, a lot remains to be seen on how all of this will play out. But if Mr. Dent’s predictions do hold true, as they have in the past, We all need to start thinking about making the necessary adjustments now.
For more information on, or to purchase “The Demographic Cliff” Click Here
It’s a great read for anyone who has plans in Real Estate investments. Or any other investments for that matter.
As this has been a sort of thinking out loud session for me about what the future holds, I’m anxious to hear your comments and whether you see a different scenario. Feel free to share your thoughts below.