Latest / Stagflation Conversations with Fexingo: High Inflation, Slow Growth, and 1970s Echoes / How Stagflation Is Reshaping the Home Renovation Market
Transcript
- Lucas: So we've talked a lot about how stagflation is reshaping industries from beer to pet care. But today I want to look at something that hits close to home — literally. The home renovation market. Luna: I've been hearing from friends that their kitchen remodel quotes have doubled since last year. Is that the story? Lucas: Partly. But the bigger picture is more interesting. The Joint Center for Housing Studies just released data showing that permits for major renovations — think full kitchen gut jobs, bathroom overhauls — dropped 12 percent in the first half of 2026 compared to the same period last year. Luna: Twelve percent is significant. But I bet spending on smaller projects hasn't fallen the same way. Lucas: Exactly right. The dollars are shifting. Instead of a $60,000 kitchen remodel, homeowners are doing a $15,000 refresh — new countertops, painting, maybe new cabinets. The total market is still roughly flat year-over-year, but the mix is totally different. Luna: So the high end is getting squeezed while the mid-range holds up. That makes sense when you look at the macro — real GDP growth is at 2.1 percent, but core CPI is still creeping up. People have less real purchasing power. Lucas: Right. And it's not just about materials. Labor costs are up too. The average hourly earnings for construction workers hit $37.60 in June, up about 2.4 percent year-over-year. But the catch is that many homeowners can't afford to pay that higher rate for a full crew over several weeks. Luna: So they're turning to what I've seen called 'diy plus'. Where you hire someone just for the skilled parts — electrical, plumbing — and do the painting and demolition yourself. Lucas: That's exactly the trend. Home Depot, for example, has reported that sales of power tools and paint are up about 6 percent year-over-year, while sales of full kitchen cabinetry are down 4 percent. Their CEO said on the last call that customers are 'trading down in scope but not in quality'. Luna: Interesting phrasing. So people still want nice finishes, they just want them on a smaller scale. That must be a challenge for contractors who built their business around big projects. Lucas: It is. Many remodelers I've talked to say they're pivoting to offer more 'maintenance-plus' services — replacing a roof, upgrading windows, things that have a clearer return on investment. The thinking is that in a stagflation environment, homeowners prioritize projects that lower their utility bills or prevent bigger damage down the line. Luna: That's a rational response. The ten-year breakeven inflation rate is at 2.24 percent, so people expect prices to stay elevated. They're probably thinking, 'I better lock in that energy-efficient window now before it gets more expensive'. Lucas: And there's a flip side too. Some people are actually accelerating renovations because they're worried about rising mortgage rates — even though the Fed has been holding steady, the expectation is that rates could tick up again. So if you're planning to sell in a few years, you want that bathroom done now while contractors are still available. Luna: Speaking of availability — the job openings data from JOLTS shows there were still 7.6 million openings in May. Construction is definitely competing for workers. Are contractors passing those higher labor costs through? Lucas: Yes, but selectively. They're raising rates on custom, high-end work where the client has less price sensitivity. But for standard jobs — like a basic bathroom remodel — they're holding the line to stay competitive. So margins are getting squeezed on the bread and butter work. Luna: That sounds like a tough business model. Let alone the material cost volatility. Lumber prices are down from their pandemic peaks, but things like copper and specialty metals are still high. Lucas: Copper especially. The price is up about 8 percent year-to-date. That affects plumbing and electrical work directly. So contractors are increasingly writing 'escalation clauses' into their contracts — meaning if material prices go up during the project, the homeowner absorbs part of that. Luna: Which is another reason why people are hesitant to start big projects. You don't want a surprise bill halfway through. Lucas: Exactly. So the industry is adapting. One thing I've noticed is the rise of 'design-build' firms that offer fixed-price packages for standardized remodels. They've streamlined the process to reduce uncertainty. For example, a company called Block Renovation — now they're in about 15 cities — offers a set menu of bathroom designs with a guaranteed price. Luna: That's interesting. So they're basically doing for home renovation what fast-casual did for dining — offering a consistent, predictable product at a moderate price. And they probably source materials in bulk to keep costs down. Lucas: Exactly. And they're capturing a lot of the demand that used to go to independent contractors for custom work. The independent guys are having to compete on speed and reliability, which is hard when you're a solo operator. Luna: I wonder if this is one of those moments where stagflation actually accelerates efficiency in an industry that was due for it. The home renovation space has been notoriously fragmented and low-tech. Lucas: I think that's right. Necessity is driving innovation. We're seeing more use of 3D scanning for measurements, better project management software, even some prefabrication of components off-site. All of that helps control costs in an environment where both labor and materials are expensive. Luna: And on the homeowner side, people are getting savvier. They're learning to do more themselves, and they're researching ROI before they start. I've seen more articles about 'which home improvements actually pay off when you sell' — and the answer is usually not the fancy chef's kitchen. Lucas: Right. The classic high roi projects are still the same: wood deck, minor kitchen remodel, siding replacement. But the threshold has shifted. A minor kitchen remodel used to cost around $20,000; now it's closer to $28,000. The ROI, in terms of resale value, has actually held steady at about 70 percent, but the outlay is bigger. Luna: So the payback period is longer. That makes people more cautious. Lucas: If today's conversation helped you think about how to plan your own home projects, or just understand what's happening in the economy — the way this show stays ad-free is through listener support. You can buy me a coffee dot com slash fexingo. That's it. No tiers, no perks, just a way to keep this going. Luna: Yeah, I think a lot of people find that useful. And it means we don't have to interrupt with ads. Lucas: Anyway — back to the data. One more number that I think ties it together. The National Association of Home Builders remodeler index for the second quarter came in at 55, which is still expansion territory but down from 62 a year ago. So the market is softening, but it's not collapsing. It's just shifting. Luna: So the bottom line is: stagflation is forcing both homeowners and contractors to be smarter about what they spend and how they spend it. Smaller projects, more DIY, more efficiency. Lucas: And that's probably going to persist as long as we have this mix of slow growth and sticky inflation. The question for me is whether some of these changes — like the rise of standardized remodel packages — become permanent even after the macro environment improves. Luna: That's the interesting angle. Sometimes a crisis forces a permanent shift in consumer behavior. We might look back at this period as the moment home renovation became more structured and predictable. Lucas: Exactly. And if that happens, it could actually be good for the industry in the long run — more transparency, better pricing, less stress for homeowners. But we'll see.