0:00

Hello and welcome to Designer Discussions with

0:02

Jason , miriam and Maria . Today

0:05

we are talking about has the home design

0:07

market slowed down ? Welcome

0:12

to Designer Discussions podcast with

0:14

Miriam . Maria and

0:16

Jason Tune in each week where

0:18

we discuss marketing , PR and

0:20

business advice for design professionals

0:22

. Pr

0:28

and business advice for design professionals . Now , before we have Maria

0:30

talk , we wanted to say thank you to all of our listeners out there that have sent in

0:32

emails and they've purchased products from

0:34

our Designer Discussions Marketing

0:36

Studio and all of the

0:38

emails we receive . We're

0:40

very appreciative of all of that

0:42

and do remember , we do

0:44

have a lot more products in the Designer Discussions

0:47

Marketing Studio and we also

0:49

have the Academy that is here to help you

0:51

through your marketing design

0:53

journey . So , with that , and we'll

0:55

hand it over to Maria , hey

0:57

guys .

0:58

So let's talk about the

1:00

inbound calls and if they're slowing

1:02

down and what budgets are

1:04

going to be changing for

1:07

the home design industry , and we're going

1:09

to talk about kind of a heavy

1:11

topic today . We're going to talk about why

1:13

it's happening and we're going to look into

1:16

the climate and

1:18

why it is changing . And

1:20

my philosophy is you got to look backwards

1:23

to kind of know what to expect

1:25

in the future , and so we're going

1:27

to talk about this from how

1:30

things have been in the past , why

1:33

things have changed in the way that they have

1:35

, and what that's going to look like moving forward

1:37

. So we're going to do a

1:39

series of episodes about

1:41

how the market is changing

1:43

, and if you haven't listened to episode

1:45

111 with Jason , where he talks

1:48

about the marketing experience

1:51

has changed over the last five years , that

1:53

is a great episode to start with , and

1:55

then we're going to add some more to this because we want

1:58

to get everybody up to date on what's going

2:00

on , all right , so today I'm

2:02

going to talk about what's going on in the home design market

2:04

, why

2:11

it is happening , what has this looked like when it's happened before and how can you stay on

2:13

top of these changes now that you can be fully aware

2:15

of what's been going on . So

2:17

, number one , to understand the home

2:20

market , there is

2:22

a term that we should all understand

2:25

, and understand why it exists

2:27

and how it's impacting our industry , and it's

2:29

called private equity . What

2:32

is private equity ? The

2:34

simplest way to describe private

2:36

equity it's when a lot of investment

2:39

money is used to buy private

2:41

companies and hold them within

2:44

a private portfolio . These

2:46

groups don't plan to make

2:48

their assets public . These are not

2:51

going to ever become large companies . They're

2:53

bought to

2:56

make money . They're not run

2:58

by the company to become

3:00

larger and

3:02

to have more people want to invest in it

3:05

and they

3:07

just are looking to make a profit . Quality

3:10

sometimes decreases and

3:12

definitely the experiences and

3:14

service aspects of these businesses

3:16

decline because they really aren't

3:19

in them to grow them really big long

3:21

term . They're just here to create

3:23

a profit and make these businesses

3:25

more profitable . So

3:28

private equity has

3:31

actually been a lot of

3:34

what has been happening to

3:37

the home market . These private groups with

3:39

tons of money that are looking

3:42

to find inflation

3:44

shelters and ways to make

3:47

money moving forward . They

3:49

are flipping the homes . They're putting them

3:51

back into the market at higher prices

3:54

. Right , and we talked about the quality tends

3:56

to decline once things have come

3:59

into the hands of private equity . So

4:01

44% of the homes were

4:04

flipped in 2023

4:06

, were flipped by investors

4:08

. So 44% of the houses that went

4:10

up on the market last year when interest

4:13

rates were super low were

4:15

bought initially

4:17

, then turned into a

4:20

profit for a specific

4:22

group of people , and it wasn't the people who are going

4:24

to be living there long term

4:26

. So , according to Forbes

4:28

, tampa , charlotte , atlanta , houston

4:31

, dallas and Phoenix were , according

4:34

to their portfolio , they are

4:36

owning one to 10 homes

4:38

, one out of every 10 homes in

4:40

certain zip codes . The

4:42

private equity ownership

4:44

of homes in the US is

4:46

4.4% of

4:49

the single family home market

4:51

. So what is private

4:53

equity going to do with all of these homes

4:56

? Right , these homes used to be hit in the market

4:58

and a family would move

5:00

into them and then plan to trade up

5:02

. They would be people buying them and wanting

5:05

to remodel them to make them beautiful

5:07

, because when the homes were hitting the market

5:09

, they weren't in beautiful shape and

5:11

these were considered investments for

5:13

these families . Well , now

5:15

these single-family homes are going to

5:17

be rental homes , and

5:20

you know , rentals don't have any design

5:22

services and they are

5:24

just done as cheaply as possible , quickly

5:27

as possible , and then they're just being

5:29

sent into the rental market

5:31

. So what does that rental

5:33

market really look like for us right now

5:35

? In 2022

5:38

, there were 1.2

5:40

million homes as short-term

5:43

rentals in the United States , and

5:45

today there are over 5 million

5:47

. 1.2 million homes as short-term rentals in the

5:50

United States and today there are over 5 million . So

5:56

this is a huge amount of houses that were owned by families that

5:58

were having children in them and then hoping to buy bigger and

6:00

have a new house very quickly , after

6:03

investing their money into the house

6:05

, putting sweat equity into it and then

6:07

turning around and selling it and making

6:09

a profit , which was allowing

6:12

people to really look at and

6:14

invest in their own personal homes

6:16

and spend money and buy the furniture

6:18

, because they knew that the day that they moved

6:20

out of the house , there was going to be a profit

6:23

at the end of it and every dime that they spent

6:25

living in the house and loving the house , they were

6:27

going to get back out . So now

6:29

, with this stuff happening , this is

6:31

going to change how people

6:33

perceive interior design

6:36

for themselves . It used

6:38

to be like a functional thing , something

6:40

everyone would think about Like the second

6:42

they met an interior designer . They would say

6:44

to you oh my gosh , I'd love to have

6:46

you over at my house so you could give me some help with

6:48

this , or oh my gosh , I want you to come

6:50

in and look at these things . And

6:54

we were kind of seen as like friends

6:56

with good advice . But

6:58

people understood that we were a luxury

7:00

service and I think most recently

7:03

we became less of a luxury service and

7:05

something that people could just sort of tap into

7:07

, no matter kind of what their income was , no

7:10

matter how big their house was , and

7:12

so we're going to

7:14

start seeing changes move

7:16

from everybody thinking that they deserve

7:18

to have an interior designer do their

7:20

house to a more exclusive

7:23

group of people with a lot of expendable

7:25

income that are going to be doing that . So

7:29

when we talk about these short-term

7:31

rentals , it isn't just private equity that

7:33

owns them . Actually , most

7:35

of the homes are owned by real

7:37

estate investors , like individuals

7:39

that own a couple of homes

7:42

or they have a group of

7:44

rental properties and that's their full-time

7:46

job . But just for

7:48

reference , 30% of

7:51

the homes in the United States are

7:53

owned as a rental property

7:55

or a secondary house for

7:58

a very small group of

8:00

people , and then

8:02

private equity owns of that

8:04

, 30% , only 4.4%

8:06

. But the problem with private equity

8:09

is that this is recent , this is a recent

8:11

buy-in and they're going to continue to keep buying

8:13

up more homes , and

8:15

that the government's looking at regulating it

8:17

because it is going to be impacting

8:20

first-time homebuyers . So

8:23

, beyond owning the homes

8:26

, these private equity firms have

8:28

purchased the maintenance market within

8:31

those same cities . What

8:33

does that sound like ? What does that look like ? Why

8:35

would a private equity firm buy

8:38

the maintenance and service market

8:40

in those areas , since

8:42

their properties are rentals and

8:45

they're going to need the maintenance and the service

8:47

, the plumbing , the electric and the AC

8:50

services in those same

8:52

markets . They are buying

8:55

those services . It's not limited only

8:57

to those three categories of plumbing

9:00

, electrical and air conditioning , but

9:02

they are buying anything that has to do with the house

9:04

. If you are wanting to get a garage

9:06

door repaired . They have groups

9:08

of people that have been buying up all of those

9:10

businesses Based

9:13

on private equity business models . They

9:16

come in private money and buy

9:18

all of the businesses that

9:20

are associated with that service

9:23

, almost creating a market monopoly

9:25

in your area with

9:28

that service , almost creating like a market monopoly in your area , and what they're

9:30

doing is that they buy the local mom and pop shops

9:32

. They automate the business . They

9:34

set pricing across the board

9:37

. So you may be used to having

9:39

like 40 or

9:41

20 service providers

9:43

in your area that are providing one service

9:46

and you could get multiple bids and they would be different

9:48

. You would read their Google reviews

9:50

, the service level would be different . But

9:53

that currently is not the case

9:55

. In certain markets they

9:57

are actually all owned by the same company

9:59

and they're all priced across the

10:01

board , and these private

10:03

equity groups are especially more present

10:06

in the markets where they own a lot of houses

10:08

. So all of

10:10

the businesses all these mom and pop shops , every

10:12

air conditioning company that you could call , every

10:15

plumbing company that you can call are

10:17

now on a single pricing model . There's

10:20

a single phone line when you call and

10:23

they also have purchased the entire Google

10:25

presence for that service in that

10:27

town . So

10:29

when you go online what does that look like

10:32

? And you search for a plumber

10:34

, you'll pull up Bob's Plumbing and

10:36

then you might even see an ad that says like Bob's

10:38

Plumbing in Google

10:40

, and then , when you click on it to call

10:43

, you're going to end up in some type of answering

10:45

service . Answering service will then decide

10:48

where you're located and ask

10:50

you if you want

10:52

to schedule an appointment , you'll notice that when

10:54

they answer the phone , they don't necessarily

10:56

identify the business at which you called

10:58

. So if you saw Bob's

11:01

Plumbing , they'll answer the phone

11:03

and it won't be Bob's Plumbing

11:05

, it'll be like plumbing services , right ? So they've

11:07

generalized and sort of generic

11:10

down some things and

11:12

they're going to own all of these businesses

11:15

. They're all going to maintain their names , they're

11:17

all going to maintain the Google listings

11:19

of those businesses and they're

11:21

going to not acknowledge

11:23

that they are one company that owns

11:26

everything . Not

11:29

acknowledge that they are one company that owns everything . So sort of this monopolized

11:32

home services model . So what

11:34

happens to your client ? Okay , so

11:36

we're going to look at this from how

11:38

is private equity going to change

11:40

the home design industry and

11:43

how you can differentiate yourself

11:45

as a better quality service

11:47

and a better quality experience

11:49

? So what's

11:52

going to happen to your client is that they're

11:54

going to call in to get an appointment . They're

11:56

going to say this is the service charge . That

11:58

person comes out , says what their service

12:00

charge is , bills them and

12:04

then , when you're asking for price , they'll

12:06

give you a price when they're there in front

12:08

of you , but they'll never quote anything over

12:10

the phone and then when you call for your

12:12

second or third bid , it's

12:15

all owned by the same company and they've already set

12:17

price . So you're going

12:19

to continue to get the same price

12:21

for that plumbing service , that AC service

12:23

, that electrician who needs to come out

12:25

, and anything that's like home service

12:28

based is going to be

12:30

all one price

12:34

because that's how they are

12:36

presenting themselves within your

12:38

market . If

12:40

you ask for a business card at the end of the

12:42

call probably not even going to have it

12:44

They'll send you an email but they're not going

12:46

to have a business card on hand because

12:49

you called Bob's Plumbing and

12:51

they sent just anyone that was

12:53

available within their

12:55

service group . So it's

12:58

going to start getting a little bit fishy and it is something

13:00

that we should all be fully aware of , because

13:03

this is how the home design market

13:05

is going to be changing and it's going

13:07

to make things a little bit harder for interior

13:10

designers . But if you're

13:12

creating an experience , if you

13:14

have the knowledgeable

13:16

workers that you recommend , if

13:19

you can niche down to

13:21

kind of help your clients

13:23

avoid some of these terrible experiences

13:25

, your business will do much better

13:27

than someone who doesn't

13:30

have those types of contacts , because

13:32

I do truly believe having really

13:34

good contacts with really good people

13:36

is actually going to become one of the most valuable

13:39

things that , as an interior designer

13:41

, you can have in your pocket , just

13:44

based on where private equity

13:47

is taking the home services

13:50

and maintenance businesses

13:53

. So what

13:56

is this meaning for your homeowner ? Price

13:58

of labor and maintenance just went up

14:00

, right

14:02

, because they're price setting it . You

14:04

don't get three bids , you can't come out

14:06

and get a different price , so

14:08

they have raised all of the prices

14:10

to be the exact same throughout

14:12

the market . Pricing

14:15

of materials is still very high . I'm

14:17

currently working on a project right now and I'm surprised

14:20

that they're still raising prices , prices

14:31

which I don't understand because they aren't associated with the shipping situation that we

14:33

dealt with in the past . That did increase prices . So

14:36

they've got high labor

14:38

, they have high materials and

14:41

they also have high interest rates

14:43

. And so what was

14:45

happening is that people were considering

14:47

remodeling , redoing a kitchen

14:49

, furnishing the

14:52

house . They had a lot of equity in

14:54

their home and they were like , wow

14:56

, I have like $300,000 in equity

14:58

in this house . I'll just spend it and

15:00

I'll go ahead and get whatever I want to get done

15:02

, and interest rates are so low

15:05

, we'll just lump it all into a mortgage

15:08

, right ? So those mortgages

15:10

that people were taking out in 2023

15:13

at 2.9%

15:15

are up right now

15:17

to 7.23%

15:20

. And if you're wondering

15:22

because , remember , we got to look back sometimes

15:24

to understand where we're going forward , and

15:26

this is when you need to tap into your friends that

15:29

are possibly older or have already

15:31

experienced a lot of this stuff the

15:33

last time we had an interest rate of

15:36

8%-ish

15:38

was in 2000 . So

15:41

it's been 24 years since

15:43

we've seen this number . So if we're wondering

15:45

what is that going to look like ? How's

15:47

that going to impact the interior design industry

15:50

, this is a great time to meet

15:52

with and kind of mastermind

15:54

with people in your area , and if

15:56

you can find someone who is in your area

15:58

and working as a designer in 2000

16:01

, this is the time to ask

16:03

them what did that

16:05

look like ? And so here

16:07

are some examples of what I've seen

16:09

in the design market . Wealthy

16:12

people are going to be wealthy

16:14

. In fact , they're going to be

16:17

operating at a very high

16:19

wealth level in comparison

16:21

to people who are working

16:23

for a paycheck , because the paychecks

16:26

are actually worth less now than

16:28

the people who own that

16:31

30% of the real estate market

16:33

that they're using as

16:35

rental property . So those people are still going to

16:37

maintain a lot of liquid

16:39

cash . They're going to have the

16:41

ability to do whatever they want to do , because

16:45

those people , that small group of people , has

16:48

a ton of cash . They are going to invest

16:50

in things . They may even

16:52

invest in pad sites

16:55

and commercial real estate , because that

16:57

market is down right now , but

16:59

without COVID that market is

17:01

usually pretty high . So you might

17:03

find some of your clients

17:06

are wanting to buy

17:08

a commercial real estate office and

17:10

want to start fixing those up and

17:13

they're going to still put their money

17:15

into a spec home here

17:18

or there . So you will see , the spec

17:20

home market will still exist

17:22

, but it is going to be at a slower

17:25

rate and there's going to be more apprehension

17:27

and people are going to act a little bit more conservative

17:30

when it comes to the spec home market

17:32

. So the location is going to be primo

17:35

, sizes of the properties are

17:37

probably going to start to scale

17:39

down and I think this is going to be

17:41

something that we're going to start noticing . So

17:45

how can you start to perceive your

17:47

business now that

17:49

the climate is changing and you're

17:52

going to still be able to market yourself and you're going to be

17:54

on the forefront of what you're going to be seeing

17:56

with the design industry . So

17:59

shift a little

18:01

bit on your focus from

18:03

away from those brand new , big

18:05

, big , huge , all white houses

18:08

, from

18:12

those brand new , big , big , huge , all white houses . Make sure you have some of your

18:14

older projects where you were adding color and pattern and

18:16

the spaces are smaller . Keep

18:18

bringing those more to the front

18:21

and talk about that as part

18:23

of your business model , because the people that are

18:25

in their homes that got that less

18:27

than 3% interest rate , they're

18:29

going to sit on that house and they're going to be there

18:31

10 , 15 years and with

18:33

that , knowing that that's

18:35

where they are , and they are going to feel a little

18:38

trapped , like they don't get to have that bigger

18:40

, more beautiful dream home in 10

18:42

years that they saw

18:44

everyone else do , saw

18:49

everyone else do . You're going to want to be the person who's out there talking about making a

18:51

shift from something that's sort of big

18:53

and plain possibly they got one of those

18:55

flip homes and turn it into a

18:57

really loved home and

18:59

how you can integrate color

19:02

and pattern and art and

19:05

all of the rich decadence

19:07

that interior design can bring to someone's

19:10

space , and those types

19:12

of projects are probably going to be like

19:14

one room projects , not

19:16

whole entire house builds

19:18

and then furnishings , but you're

19:21

probably going to start doing room

19:23

by room , by room , which is a

19:25

lot of what interior design looked like in

19:28

2000 . So

19:30

if you can look at featuring more

19:33

remodels , less new builds

19:36

, if you have like shop

19:38

drawings of additions that

19:40

you're putting on people's houses , shop drawings

19:43

of how you reconfigure an old

19:45

bathroom to have a completely

19:47

new life , this is where

19:49

those things are going to be working

19:52

for you , and

19:58

if you can start implementing and showing that aspect of your business a little bit here

20:00

and there , people are going to feel like , oh wow , I don't have to build a big

20:02

brand new house to love my home

20:04

. I have a resource . I

20:06

have a really great designer , a really

20:08

good kitchen and bath and remodeling

20:11

studio that can come out and

20:13

transform what I already have . I don't

20:15

have to leave where I am right now

20:17

to have that dream home , to have that

20:19

beautiful house and experience that

20:21

wows people when you come in

20:23

the door . So another

20:25

thing that we want to talk about that's super

20:28

duper important is this

20:30

is Jason's , this

20:32

is Jason's thing . This

20:34

is the time to

20:37

actually market your business

20:39

. First , miriam , can you talk a little

20:41

bit about the business model for

20:43

the large corporation you work for when

20:45

the economy slows down Of

20:48

course .

20:48

Yes , it's actually one of my sort

20:51

of favorite experiences from

20:53

my corporate life , and this goes

20:55

back all the way

20:57

to , like , the

20:59

hard economic times around 2008

21:02

. And what happened

21:05

is so . I worked for Kohler Company

21:07

at the time , and if

21:09

anybody has ever been to KBIS

21:12

, you know that

21:14

the Kohler Company always has

21:16

the biggest , most flashy

21:18

, extravagant booth of all . It's still

21:20

like that to this day . We just saw it this

21:22

year , but

21:45

anyway . So Kohler spends a lot . Of years

21:47

ago he was adamant

21:49

about maintaining brand

21:52

awareness and marketing spend

21:54

during the downturn and

21:57

, um , like

21:59

, if you look back in the industry , kohler

22:01

was really I'm

22:04

not saying that they didn't cut back

22:06

at all , but they cut

22:08

back significantly less than

22:10

the competing brands

22:12

in the industry and what that allows

22:14

you to do is to take market share

22:16

during the downturn . So when

22:19

things inevitably are going to turn

22:21

back up because the economy

22:23

is cyclical , you know , and after every

22:25

downturn comes the upswing

22:27

, and after every downturn comes the upswing so what that allows you to

22:29

do is take market share from

22:32

your competition and you're going to be positioned

22:34

extremely well

22:37

when business is coming back

22:39

and we talk about this a lot

22:41

for smaller businesses too . The same

22:43

principle applies

22:46

, right , jason ?

22:48

Yes , and I'll just add on to that

22:50

If you're running ads whether it

22:52

be on Google ads , facebook ads

22:54

, tiktok ads , whatever as more

22:56

people or more businesses

22:59

turn away from that , oftentimes

23:02

you're able to get more out

23:04

of it because the ad spend or

23:06

the cost per click goes

23:09

down because there's less people

23:11

using it . It's just the simple supply

23:14

and demand . So there's just

23:16

not as many businesses out there running

23:18

ads . So if you're one of the

23:20

ones that are running ads at that time , oftentimes

23:23

you'll pay less than when you would

23:25

, when the economy is great . So

23:27

putting the same amount of money

23:30

in that you would in a downturn as

23:32

you would any other time would help

23:34

you . And then , like Miriam talked about

23:36

it , they help you with the market share

23:38

in your local market . So

23:40

that's what we see . A lot of small businesses

23:43

tend to do the opposite of what I just

23:45

talked about . But if you are

23:47

able to sustain that , you'll see

23:49

gains when the market

23:51

turns around .

23:53

That's awesome . So I want to go back

23:55

to episode 111 , how

23:57

marketing has changed over the

23:59

course of the last five years . Listen

24:02

to that episode . Jason gives you the skinny

24:05

on what's been happening within the

24:07

last couple of years , and then

24:09

we're going to continue to create more episodes

24:12

on this topic . We're going to look back

24:14

and give you kind of a climate change

24:16

of what to expect for your design

24:18

business .

24:20

This was a good episode that Maria talked

24:22

about where we are in the design world

24:24

right now and if you have any questions on this

24:26

, feel free to let us know , and we look

24:29

forward to hearing and seeing you in two weeks on

24:31

Design Discussions .

24:33

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Sign up at designer discussionscom or follow the link in the show notes . We hope you

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25:13

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