Americans are putting their kitchen and bathroom remodeling plans on hold.
After three years of 6% to 7% growth, the home renovation market is now projected to stop growing and even shrink by the fourth quarter of this year, according to the Leading Indicator of Remodeling Activity (LIRA), a quarterly measure of remodeling activity by the Joint Center for Housing Studies of Harvard University.
“Everyone is concerned about how bad this downturn might get. And so homeowners are nervous about making big plans, investments or expenditures they don’t need to make,” said Abbe Will, research associate and associate project director of remodeling futures at the Joint Center for Housing Studies of Harvard University.
The coronavirus pandemic is expected to hit the home renovation industry later this year and as a result the 3.9% growth once expected for the first quarter of 2021 has been revised to plummet 1.2%, according to the Joint Center for Housing Studies of Harvard University.
The projected decline is due not only to economic uncertainty but also a decline in home buying. Home buying and selling is a driving factor for renovation as sellers prep their home and buyers customize it to their tastes. In fact, recent homebuyers spend 30% more on home improvements than the average homeowner, according to the Joint Center for Housing Studies.
“The impact of home sales will trickle down. Typically home sales activity today will influence remodeling activity over the coming years. So any downturn we see now will impact the next four or five quarters after [the market recovers],” said Will.
The home renovation industry grew 3.3% in the first quarter of 2020, its slowest pace in three years and missing expectations of 3.4%. The slowdown is due to economic turbulence, higher construction costs and last year’s housing slowdown.
Shift in business
Three fourths of home renovation companies, including construction, architecture and design companies, have reported project delays and fewer new business inquiries due to the pandemic, and about 60% have reported project cancellations, according to the Houzz Renovation Barometer, which surveyed over 2,000 home renovation companies from March 26 to April 8.
“Despite beginning the year confidently, with a long backlog of work and high expectations, firms in the residential construction sector and the architectural and design services sector have experienced a sudden, dramatic shift in the wake of the COVID-19 pandemic,” said Marine Sargsyan, Houzz senior economist.
Home renovation companies have attempted to tailor sales strategies to the new pandemic-driven economy. One home maintenance startup, Sheltr, now offers free video calls with professionals to talk homeowners through repairs. In fact, half of architecture and design firms are offering video consultations and remote collaboration tools, while some 57% of construction businesses have implemented new safety guidelines, according to Houzz.
Some companies are focusing on essential repairs which tend to continue even in a downturn. Essential repairs do not make up for the loss in income but will become increasingly central in the home renovation market as consumers cut down on discretionary spending.
“During any downturn, remodeling does still happen… If the roof is leaking, you can’t put it off forever. Homeowners will still be doing remodeling projects this year, and the projections show they are still spending quite a bit, but on a different mix of projects,” said Will.
Sarah Paynter is a reporter at Yahoo Finance. Follow her on Twitter @sarahapaynter
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