A boom in renovations shows you just how much money is in the system.
Interesting reports last week that construction powerhouse James Hardie is now marketing direct to households, and cashing in on a renovations super boom.
James Hardie chief executive Jack Truong says he expects strong momentum to continue as the company benefits from its push to market the James Hardie brand straight to decision-makers in households.
He said renovators are increasingly the main driver of the company’s strong financial performance, and he expects that as economies open up they will keep investing in upgrades of their biggest asset after a shift in mindset during the pandemic.
“Particularly in the post COVID environment, where home is the castle,” he said.
Home has definitely become the castle. Mine has become more of a pillow-fort, with catapults to keep away intruders.
And it’s the flip-side of the current property boom. Not only are people spending up on new houses, they’re spending up big on renovations.
We can see this in CBA’s lending data. New home lending is going through the roof.
But ‘alterations and additions’ (=renovations) is booming too.
Partly this is about people spending more time at home, but if you’re taking out a loan, you’re not giving the place a small tidy up to make it a bit more liveable. You’re doing something major that changes the property in a substantial way.
And by and large, people on take on those major changes when they’re feeling flush and confident about their financial situation.
And of course they are. Households are minting it right now.
First up, they have a lot more free-cashflow thanks to falling interest rates. Falling interest rates have reduced the interest burden on households.
In fact, as a percent of disposable income, interest payments have fallen to the lowest level on record!
Not only that, with surging offset accounts and some households paying down debt, debt to household income has fallen sharply too.
So households are flush with cash.
And with households stashing a lot of that surplus cashflow away, household savings are booming.
Some people are saying that the warchest households are building is going to top $200 billion, if not more.
And so that’s what’s driving the reno boom. Households have free-cashflow and cash at the bank.
Which, by the way, is exactly the kind of thing that could drive an epic lift in property prices in 2022.
When households have a lot of money, look out.
That money has to go somewhere.