The construction industry is constantly evolving, shaped by economic conditions, market shifts, and industry-wide challenges, from labor shortages to the cost and availability of materials.All of these factors have an impact on professional contractors and their business operations, such as the type of home improvement projects they’re involved with and their productivity, efficiency, and project timelines.
Throughout this year, there have been growing concerns about rising costs, labor shortages, and the effects of current U.S. trade policy and tariffs, according to HIRI’s Quarterly Contractor Business Sentiment Tracker for Q3 2025, conducted in partnership with The Farnsworth Group. However, industry professionals are starting to feel a little more optimistic about the home improvement market than earlier in the year, with energy efficiency and renewable energy installation, technology integration, and sustainable materials being reported by Pros as opportunities for business growth.
For building products manufacturers and suppliers, a good sign is that the demand for home improvement products and materials has remained largely steady, although there are a few pain points that continue to put pressure on contractors.
What Factors May Impact Contractor Business Activity in 2026?
Our research highlights a variety of the opportunities and challenges facing industry professionals and how they relate to efficiency, productivity and project timelines, along with influencing the level of satisfaction that contractors have with other industry stakeholders.Here are a few of the trends that have emerged this year and how they might influence the industry outlook for manufacturers and suppliers moving forward into 2026:
1. Growth is Anticipated in the Home Improvement Market Through 2029
According to HIRI’s September 2025 Size of the Home Improvement Market report, the total home improvement market is projected to grow by 2.5% this year, and another 3.8% in 2026. Consumer market sales are projected to land at just 1.3% growth in 2025 but accelerate to 4.3% growth in 2026, while the professional market has shown greater potential in 2025. Sales among industry professionals are expected to increase by 4.6% in 2025 but growth to slow to 2.9% in 2026. Your strategies for targeting Pros versus homeowners may need to be assessed as we turn the corner into 2026.Some of the product categories that show the highest growth potential from 2025 to 2029 include
- roofing and supplies
- gypsum and specialty boards
- lawn and garden equipment and supplies
- soft-surface floor covers
- and other building materials, which includes connectors, steel studs, masonry supplies, ceilings, heating and HVAC units, and refrigeration equipment and supplies, among others.
2. Overall Market Sentiment Among Contractors is Stabilizing
In general, any light pessimism regarding the home improvement products market is subsiding to tempered optimism. More than half of pro contractors are anticipating growth in revenue over the next year, as of Q3. While that’s significantly lower than the same quarter last year - when 73% anticipated positive revenue changes - it’s roughly the same percentage as we observed in Q1 and Q2 of 2025, which reveals some signs of settling. Additionally, based on findings from The Farnsworth Contractor Index, contractor confidence is up in all areas (remodeling, exterior, mechanical, finish, and landscape) compared to last quarter. However, interest rates and inflation continue to weigh on contractor confidence.
3. Material Costs and Economic Uncertainty Impact Contractor Outlook
Industry pros continue to struggle with high materials costs and economic uncertainty, although the pessimism is beginning to ease up and most projects in Q3 of 2025 finished on budget. This signals that contractors will soon need to adjust bids upward, go over budget, take hits on their margin, or increasingly seek lower-priced products and alternative suppliers to make the numbers work for their business. Tariffs have also emerged as a disruptor to contractor confidence over the past year, although concern around this macroeconomic driver dropped slightly between the second and third quarter. About 39% believe tariffs will have a significant impact on their business over the next year.
4. Energy Efficiency and Sustainability Provide Growth Opportunities
Growth expectations reveal a high level of caution among industry professionals. In Q3 2025, about 53% believe the home improvement market will grow, either slightly or significantly, which is down from 71% in the same quarter last year. Over the past year, energy efficiency and sustainable, health-conscious materials have emerged as future strategic priorities. Research shows that a significant amount of focus is shifting toward these areas, along with technology integration and renewable energy installations. Homeowners across generations are interested in energy-efficient systems and appliances, with cost-savings being the biggest source of motivation for all demographics.
5. Market Competition Settling Down in 2025
Competitive intensity has been decreasing over the past year, with only 53% of contractors feeling that there is “much more” or “somewhat more” competition in the market compared to a year ago. As of Q3 2025, the average number of projects that contracting companies have in the pipeline is approximately 15, a five-quarter high. On average, companies had started about 9 projects over the past three months, and completed roughly 7.7. Mid-size projects, in the $5K to $25K range, have the largest share among projects started in the past three months, followed by smaller projects ($1K to $5K). Our research shows that the percentage of mid-sized projects has increased over the past five quarters.
6. Shortages of Labor and Materials Exert Pressure
While weather remains the top challenge during the execution phase of home improvement activities, material and labor shortages, particularly when it comes to quality labor, continue to increase. In particular, labor challenges reached their highest level of the year in Q3. Increasing competition and customer engagement are secondary concerns, but are concerns that continue to persist in 2025. In terms of material concerns, rising costs remains the dominant challenge, followed by availability and quality. Most contractors report both rising material and project costs, with nearly three out of four contractors stating that there has been a “slight” or “significant” increase in project costs, up from 69% in the same quarter last year. For labor, availability is the main challenge, and concerns over quality also remained elevated for several years now. Additionally, the Economic & Industry Update reveals that the number of jobs being added in the construction industry has been declining since mid-year 2025. Based on data from August, jobs added are down more than 130% from the same period last year.
7. Pros' Pain Points with Manufacturers and Suppliers are Shifting
In regards to manufacturer challenges, product availability is the most pressing issue, while product quality and support challenges continue their steady increase quarter over quarter, adding to availability and delivery pressures. When working with suppliers, the main challenges that contractors face are also product availability and delivery timelines. While these remain entrenched challenges, there’s also been a growing concern about lack of product support, an issue cited by nearly one-fifth of industry pros. Manufacturers and suppliers who can find strategic ways to address these pain points will position themselves to capture a greater share of business from contractors in the coming years.
8. Enhancement and Remodel Work Show Highest Potential for Pros
Contractor activity continues to center on enhancement and remodel work, consistently accounting for roughly 43% to 45% of projects. It appears, based on our research, that homeowners are more frequently completing maintenance on a DIY basis, and then calling in the pros for more complex projects. Kitchens, bathrooms, and living spaces are the most frequently completed areas, indicating sustained demand in high-traffic, value-adding spaces. More than half of contractors worked on these types of projects over the past three months. Whole home systems, such as plumbing and HVAC, are among the least completed projects, along with pantries and storage, hobby, or craft rooms.
9. Demand for Materials Remain Stable
In general, advanced retail sales for building materials, garden equipment and supplies dealers has been steadily decreasing since May, according to our Economic & Industry Update. It resembles similar seasonal trends in years prior, although in August, retail sales were down roughly 5.7% compared to the same period last year. Core building materials, including adhesives, drywall, lumber, and fasteners, remain in high use, reflecting the structural focus of many jobs. The exterior envelope product category also experiences high levels of purchase activity from professionals. Meanwhile, mechanical systems trail other categories. Overall, demand for home improvement materials has remained relatively stable over time, signaling a steady operational focus, rather than a shift in project scope or complexity. Not surprisingly, purchasing patterns show reliance on big-box retailers as the main shopping channel. However, our research shows gradual growth in online and discount-oriented channels as contractors search for cost control and efficiency gains.
Exploring Contractor Activity and Project Trends
To delve deeper into the challenges facing contractors at different project phases, as well as their current project backlog and future anticipated workload, download our most current Quarterly Contractor Business Sentiment Tracker. This report contains practical recommendations for industry stakeholders, including building products manufacturers and suppliers, and further insights into the impact of broader economic trends, market conditions, interest rates, and the overall health of the housing industry on contractors’ businesses. This study is part of the many research projects that HIRI conducts each year for its members.
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