Home renovation activity and spend have reached the highest rates reported since 2018, but momentum may be slowing.

The Home Improvement Research Institute (HIRI), the nation’s resource for market research concerning the home and building products industry, has forecasted consumer spending on home improvement products will steady after two years of extreme demand following the COVID-19 pandemic.

Rising inflation, reduced real household income and completed projects led HIRI to forecast that overall consumer market sales will increase by 2.8% in 2023 to $382.5 billion. Looking at growth over the last 10 years, the 2.8% increase reflects a healthy market. In 2020 and 2021, consumer spending on home improvement soared to 15% and 13.3%, respectively, as homeowners invested time and money into their spaces that served as homes, offices, schools, gyms and more.

“The extreme increase in demand for home improvement products that we witnessed because of the pandemic was bound to calm sooner or later,” said HIRI Research Director Matthew Craig. “While consumer spending is easing slightly on home improvement products, it is important to emphasize that any future boost is compounded on previous unprecedented growth. The market is still performing very well.”

HIRI reports differing economic circumstances and homeowner needs as reasons for the shift in consumer demand. This year, households are seeing real income decline as inflation climbs and stimulus payments recede. The forecast predicts U.S. real disposable income to decline by 3.5% in 2022 after climbing 2.2% in 2021.

For those left unaffected, disposable funds are expected to be directed toward hobbies or other major purchases, as many report pandemic-era projects being brought to completion. However, contractor-led projects are expected to see an uptick as homeowners become comfortable allowing professional help into their living spaces again.

More than half of homeowners renovated their homes in 2021 (55 %), according to 2022 Houzz & Home Study. These renovations are up from 53 % in 2020 and 54 % in both 2019 and 2018. Home renovation activity continues into 2022, with over half of homeowners planning to renovate (55 %) and nearly half planning to decorate (46 %) this year.

“Market fundamentals, including limited and aging housing stock, continue to propel the home renovation market,” said Marine Sargsyan, Houzz staff economist. “Homeowners are clearly committed to investing in their homes despite heightened product and material costs driven by supply chain disruptions and are exploring diverse funding sources. This is especially pronounced among recent homebuyers, who rely heavily on cash from previous home sales to fund their projects and spend significantly more than the national median.”

Following the 15 % growth in median spend last year, homeowners report an additional 20 % jump in median renovation spend at $18,000. This growth can be attributed to homeowners with higher budget projects (the top 10% of spend) increasing their investment from $85,000 in 2020 to $100,000 in 2021.

Investment Rises in Interior Rooms

Median spend increased across nearly all interior room renovations in 2021, according to Kitchens, which remain the most popular interior room to be upgraded and the room that commands the highest spend, saw an increase in spend of 25 % compared with 2020 ($15,000 versus $12,000, respectively). Interior rooms that saw the most dramatic increase in spend included guest bathrooms (38 %), laundry rooms (33 %), living rooms (33 %) and guest bedrooms (28 %).

Kitchen renovations top the list of popular interior upgrades among short-term homeowners, with 28% making over this space, followed by bathroom remodels and additions.

That said, homeowners who had lived in their home for five years or less invested as much in their kitchen in 2021 as homeowners of all residency lengths ($15,000 median). Median spend by short-term homeowners on primary bathroom projects was nearly 11% less than median spend among homeowners of all residency lengths.

Surfaces in the homes continue to see upgrades. Houzz reports that 38% of homeowners added new hard-surface flooring, 13% added new carpeting, and 28% added new tile walls or backsplashes.

Consumers Continue to Remodel Outdoor Spaces

While the renovation of outdoor spaces has declined slightly since its peak activity in 2020 (54% of homeowners renovated outdoors in 2021, versus 57% in 2020), there are still a lot of projects happening in this space.

"We're seeing higher consumer demand for home design and remodels with seamless indoor to outdoor flow," said MSI Creative Director Emily Holle. She noted that the company's coordinated products—pavers, tiles, pool copings and LVT—offer dealers a one-stop shop that is aimed to help retailers increase project scope and boost ticket sales.

While many companies have moved into kitchen, bath and plumbing to capture larger project tickets, Cali is also seeing a big opportunity with outdoor spaces. "We feel that 'Your Floor Outdoor' falls into that new category—it's a bolt-on," said Bob Fish, vice president and general manager, Cali. "You're in the house and the consumer's comfortable with you. Why not sell the deck? Why not sell them turf? Why not sell the outdoor rugs?" 

Demand grows for home professionals

Houzz reports that more homeowners sought help from professionals for their renovations in 2021 than in the year prior (89 versus 87%, respectively). Homeowners relied more heavily on specialty service providers (49%) than other professionals for help with projects that required electrical and plumbing expertise. That said, both construction and design-related professionals were hired by a larger share of homeowners in 2021 (38 and 20%, respectively) compared with 2020 (36 and 18%, respectively).

In response to these trends, Emser launched a curated kitchen and bath program to help retailers and consumers save time when designing these spaces. Curated design boards consist of the company's best-selling floor tile, wall, tile and decorative mosaics in 24 professionally designed sample boards. The boards feature today's trends in wood-look, stone, marble and contemporary styles. 

"Consumers want everything curated for them and they want it professionally designed—it's very time consuming," said Randall Sheehe, director of strategic accounts, North America.