• November

    6

    2018
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Are Floor Renovation Prices Expected To Rise?

Are Floor Renovation Prices Expected To Rise?

If a floor renovation was in your plans to help boost the value of your home, we may have some bad news for you. The new tariffs on Chinese goods passed by the Trump administration have caused the price of many construction materials to rise, which will likely also raise the price of floor renovations. The new trade tariffs can affect your house construction costs, leaving future remodeling pricing up in the air.

Surprise price jumps are no fun for anyone, especially not homeowners. Unfortunately, it is those in the construction, and in this case, flooring industry, who may end up taking the brunt of the impact from these tariffs.

In this post, we’re going to take a look at average renovation prices and see how these tariffs will cause home renovation prices to increase moving forward. This is not to discourage you from moving forward with any planned floor renovation project, but rather to inform you of potential price changes so you are prepared.

Overview of the China Tariffs & Impact on the American Construction Industry

As the trade war with China continues, it seems to be those in the construction industry that are being hit the hardest by the levies, despite the intention to create an America-first market. Placing tariffs on the materials has meant that American construction companies have to pay more for materials, regardless of where it comes from.

Companies were using Chinese materials in the first place because they were cheaper, and making those construction raw materials that come from China more expensive. While it may create more jobs for companies that are creating the same materials in the U.S., it does not make up for the fact that prices of the materials are now higher. This harms the American construction companies who now must pay a higher price for materials.

Not only are construction companies paying more, but so too are homeowners, whom often have to cover the extra costs. Construction companies still have to make money for their work, after all, so the tariffs are in essence forcing them to charge more for projects.

President Trump has now twice placed tariffs on goods that come from China, and while the flooring industry mostly dodged a heavy impact on the first round, the latest tariffs have made a big difference in the price of raw material used in flooring in the U.S. This has caused floor renovation prices to rise.

To recap, President Trump signed an order back on March 8, 2018, that placed a 25 percent tariff on imported steel as well as a 10 percent tariff on imported aluminum. Since neither of these materials is used in flooring, this first round didn’t make much difference to the cost of floor renovation projects.

However, flooring companies took notice and began to worry, as they suspected this was only just the beginning. Unfortunately, they were accurate in their suspicions, and the second round of tariffs that followed in this ongoing battle for trade supremacy targeted flooring materials head on.

This additional $200 billion in tariffs on Chinese goods included flooring materials such as plastic, engineered and solid wood, bamboo, cork, carpet-tufted and woven, tile, glazed and unglazed ceramic, and vinyl flooring for kitchens and homes. The tariffs applied to ceramics and natural stone, many of which typically come from China, will drive up prices on floor remodels, particularly for bathroom tiling.

Separate tariffs that targeted Canadian lumber have risen the price of hardwood flooring, making home and kitchen remodels more expensive as well. The Canadian lumber tariffs have driven up lumber prices as much as 31 percent.

The Impact of the Tariffs on Floor Renovation Prices

The hikes in prices on construction materials will have a direct impact on the overall price of all construction projects, including floor renovations, cabinets remodeling, bathroom construction, and all other kitchen remodel components.

According to HomeAdvisor, the national average price to install flooring in 2018 at $2,882. This number, of course, is just an average and can vary widely based on the many different materials that can be used.

Wood flooring is far more expensive than other materials, clocking in at an average of $8.00 per square foot. This average also varies depending on the type of wood used. With the current 10 percent tariff expected to rise as high as 25 percent, American homeowners could see their quotes for renovation projects rise just as significantly, as it will be the consumer who has to take on the brunt of the price changes.  

This is because many construction companies have been forced to add in escalation clauses to their upcoming projects. Those flooring renovations scheduled for 2019 likely have these clauses included protecting the companies against the rising prices of goods. Home values have also gone up, which in turn has made the home renovation market more popular, as homeowners want to further increase the value of their homes while the market is up.

So we are now facing a classic supply and demand issue, where companies need to keep the work moving forward, and with domestic materials not at the ready, they will continue to require Chinese goods. The problem then will come if the American consumer does not want to pay the added cost to have their renovation projects done, which could lead to another economic downturn.

The fear of further spikes in prices has caused homeowners to scurry into action to request that their projects be completed faster before any further escalation can impact their prices. This means the tariffs are putting a great deal of pressure on the construction industry to get jobs done quickly, at higher renovation costs, before things get worse for the remodel industry.

Homeowners Facing Price Increases More Than Construction Companies

As we mentioned, the flooring industry mostly avoided the first round of tariffs on Chinese goods, but the second round seems to be making up for that omission, by significantly impacting the vast majority of materials used in today’s flooring. Inexpensive hardwood imitations are the most heavily impacted by the tariffs, causing prices for these materials to rise while they are most in demand.

According to the National Association of Home Builders, the second wave of tariffs included roughly $10 billion worth of Chinese products that are exclusive to the homebuilding and remodeling sector. While 10 percent is a significant number already, it actually is projected to rise to as much as 25 percent by the end of the year. These are staggering numbers in context.

Lower-cost flooring materials like vinyl and linoleum average around $2.50 to $3.30 and $3.30 to $4.20 respectively per square foot. If we’re talking a 1,000 square foot flooring project, you’re adding around $1,000 to your overall floor renovation price. The price difference could reach that level if things go the direction flooring companies fear.

Second Wave of Tariffs More Directly Impacting the Flooring Industry

In fact, the tariffs could raise prices so much for luxury vinyl tile (LVT) and wood plastic composite (WPC) flooring that a group of vinyl flooring suppliers formed a coalition against the tariff’s implementation.

One CEO from the group called the tariff on these flooring products an “unfair tax on the American consumer,” who will end up paying more for their projects. The increasing prices for flooring projects hurt layers of businesses involved in the sale of these flooring products.

For what it’s worth, others believe the flooring industry won’t be too heavily impacted as some of the cost difference will be absorbed by the exchange rate since the American dollar is strong while the Chinese Yuan is waning.

However, the “end user,” AKA the American consumer, will also face price increases. This means that even in this optimistic outlook for construction companies, it is the American consumer who is helping reduce the impact of the tariffs by paying more for projects.

Demand for LVT and multilayer flooring has rapidly risen in the U.S. and there is currently not enough domestic supply to meet the demand. Therefore, the Chinese materials are needed to keep construction projects moving forward. This means floor remodeling costs will be higher if the contracts had a clause to protect construction companies against the rising material costs.

Not only will the tariffs result in higher prices, but also fewer choices for the consumer, as it will cause dynamic market changes. Companies are able to offer a wide product portfolio because they source both domestically and internationally manufactured materials.  

The tariffs may indeed create some jobs for domestic companies, but the negative impacts felt by other industries may far outweigh the positive outcomes. The gains seen on the job market may get the publicity, while the losses spread throughout the industry will go unnoticed.

Historical precedent shows that trade wars tend to have this effect. President Bush’s tariffs on steel created more American jobs but raised the price of steel so much that it outweighed the jobs gained, creating an overall net negative. Members of the coalition cite fair global trade as the way to keep the economy running smoothly, rather than trying to falsely jumpstart innovation.

The tariffs on LVT products could make the price on hardwood flooring more competitive moving forward, however, the Canadian lumber tariffs could prevent this from happening as well. Either way, it seems the customer will end up paying more. Higher prices on goods simply mean that consumers have to pay more for their projects or downgrade to a material of lesser quality.

Other Industries are Being Impacted as Well

The flooring industry certainly isn’t alone in their concern over the impact of the tariffs. The price of Coca-Cola has gone up due to the tariffs on aluminum. Boston Beer Co., the brewer of Sam Adams, has been forced to raise its prices by up to 2 percent because of the tariffs.

Even automakers like General Motors Co., Ford Motor Co., and Fiat Chrysler Automobiles NV have been forced to adjust their full-year 2018 outlooks due to lower-than-expected second-quarter earnings.

Summary

While the tariffs have yet to put construction companies in the red, they are certainly on high alert, as things don’t appear to get any better. Those who are looking to order floor renovation projects for a kitchen renovation or bathroom remodel should speak candidly to their companies about the projected price increases to know what they might expect to have to pay extra. Although the situation is far from stable, it is best to do all you can to inform yourself as a consumer and prepare for the upcoming potential for further price hikes.

For more information on kitchen or bathroom remodels, contact the San Diego home renovation experts at Remodel Works today.

Sources:

https://remodelworks.com/blog/construction-industry-news-why-your-home-renovation-may-cost-more-in-2018/

https://www.homeadvisor.com/cost/flooring/install-flooring/

https://www.floordaily.net/flooring-news/latest-round-of-proposed-chinese-tariffs-includes-flooring-

https://fcnews.net/2018/08/flooring-industry-braces-for-tariffs-on-vinyl/

 

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