Latest / Stagflation Conversations with Fexingo: High Inflation, Slow Growth, and 1970s Echoes / How Stagflation Is Reshaping the Home Renovation Market
Transcript
- Lucas: You know, Luna, I've been looking at the latest PCE data — the price index hit 131.5 in May, up almost half a point from April. And that's the Fed's preferred inflation gauge. But at the same time, real GDP growth annualized is only two-point-one percent. That's the definition of stagflation, and it's been hanging around for over a year now. Luna: Right, and one of the more interesting downstream effects I've been noticing is in home renovation. People are still fixing up their houses, but the nature of those projects is changing fast. Lucas: Yeah, the 'funflation' piece in CNBC this weekend actually touched on this — staying in isn't the cost-saver it used to be, because the cost of upgrading your home has gone through the roof. Lumber, copper, even paint — all up double digits year over year. Luna: And it's not just materials. Labor costs are sticky. Average hourly earnings for private workers are up to thirty-seven sixty an hour, but that's only about a two-point-four percent increase year-over-year. Meanwhile, the cost of hiring a plumber or electrician has risen more like eight to ten percent. Lucas: So the homeowner is caught in a vice. Their real wages are barely growing, their existing mortgage might be at a low rate if they locked in before 2022, but any new debt — say, a home equity line — is at eight percent or higher. So the calculus on a major kitchen remodel changes entirely. Luna: Exactly. And the data from the Joint Center for Housing Studies backs this up. Their Leading Indicator of Remodeling Activity — which tracks spending on home improvements — showed growth slowing from about eight percent in early 2025 to just over two percent in the first quarter of 2026. That's a dramatic deceleration. Lucas: And that two percent is barely keeping pace with inflation, so in real terms, renovation spending is flat to declining. But here's what I find fascinating: it's not a uniform slump. The type of work being done is shifting. Luna: What are you seeing? Are people just patching holes instead of building additions? Lucas: Pretty much. Large discretionary projects — think full kitchen gut jobs, master bath overhauls, deck additions — those are down maybe fifteen percent year over year. But smaller, necessity-driven work is holding up. Roof repairs, HVAC replacements when the old unit dies, water heater swaps — things you can't postpone. Luna: That makes sense. If your furnace goes out in January, you're not going to wait for interest rates to drop. But the kitchen that's merely dated? That can wait. Lucas: Right. And the waiting itself creates a kind of deferred maintenance backlog. Which could be a problem down the line if the economy stays sluggish. But for now, companies like Home Depot and Masco are feeling the shift. Home Depot's same-store sales were down three percent in their most recent quarter, and they cited softer big-ticket transactions. Luna: Masco, which makes faucets, cabinets, and paint — they reported a similar pattern. Their North American retail sales dipped, but their professional contractor segment held up a bit better, especially in repair and remodel. Lucas: That's the key distinction. The professional contractor who does a mix of new construction and renovation is pivoting to more repair work. And even then, they're dealing with thinner margins because material costs haven't come down. Luna: And the DIY crowd — those weekend warriors who were building decks during the pandemic — they're pulling back too. The National Association of Home Builders' remodelers index showed a drop in the 'current market conditions' component for the fourth straight quarter. Lucas: I think part of that is the 'funflation' angle wearing off. During the pandemic, people had stimulus money and nowhere to go, so they poured cash into their homes. Now, with stagflation, that discretionary spending is under pressure. Travel, dining out, experiences — those are competing with a new patio. Luna: And in many cases, experiences are winning. The CNBC piece mentioned that spending on services like travel has risen faster than goods spending for several months. People want to get out, not stay in. Lucas: So the renovation market is essentially splitting into two tiers. On one side, high-end luxury remodels — think custom millwork, imported stone — those are still happening, because the wealthy aren't as affected by inflation. But the middle market, the typical homeowner with a hundred-fifty-thousand-dollar remodel budget, is pulling back hard. Luna: And that middle market is where a lot of contractors make their living. So they're having to adapt — smaller jobs, more bids, tighter pricing. Lucas: There's also a geographic dimension. In the Sun Belt, where new construction is still relatively strong, renovation work is more likely to be tied to new homes — upgrades at purchase. But in the Northeast and Midwest, where the housing stock is older, it's more about repairs and maintenance. That older stock actually creates a floor under demand. Luna: So you're saying the older the house, the more inevitable the renovation spend? Lucas: To a point. A fifty-year-old roof eventually needs replacing. But the homeowner might choose a less expensive material, or they might finance it over a longer period. The decisions are getting squeezed. Luna: If today's conversation helped clarify why your own remodel plans might be stalling — or why your contractor's quote seems higher than expected — I'd just say, the reason these episodes stay free and ad-free is listener support. If it's been useful, you can find us at buy me a coffee dot com slash fexingo. Every bit helps keep the research going. Lucas: Absolutely. And speaking of research, let's pull on one more thread. The CPI data from May showed shelter costs still rising, though at a slower pace. That's important because shelter is a huge component of the index, and if people are spending more on their mortgage or rent, they have less for renovation. Luna: Right. The shelter index was up four-point-one percent year-over-year in May. That's down from five-point-five percent a year ago, but still well above overall inflation. So the cost of just having a roof over your head is eating into disposable income. Lucas: And that feeds back into the renovation decision. If your rent goes up three hundred dollars a month, you're not going to spend fifteen thousand on a bathroom remodel. You might just paint the walls yourself and call it good. Luna: That's the DIY alternative — but even paint is up. The producer price index for paint and coating materials rose six percent year-over-year. So even the budget option costs more. Lucas: So what's the outlook? The Joint Center for Housing Studies expects renovation spending growth to remain in the two to three percent range through the end of 2026. That's tepid. But if the Fed starts easing rates later this year, that could unlock some demand. Luna: Though lower rates might also reignite home buying, which could shift spending away from renovations and toward purchases. It's not a simple equation. Lucas: No, it never is in stagflation. But the key takeaway for me is that the home renovation market is a canary in the coal mine for middle-class financial health. When people stop upgrading their homes, it's a sign that they're feeling squeezed. And that has ripple effects through manufacturing, retail, and construction employment. Luna: So we'll keep watching those remodeling data points. And if you want to keep these conversations going, you know where to find us. Lucas: Exactly. Next time, we'll look at another industry getting reshaped by this slow-growth, high-inflation environment. Until then, keep your tools sharp and your budgets tighter.