The construction industry is constantly evolving, shaped by economic conditions, market shifts, and industry-wide challenges. To start off 2026, contractors have remained cautiously optimistic, despite economic headwinds, challenges with affordability, and tariff concerns.
More than half of these key industry professionals anticipate revenue growth over the next 12 months, and the competitive environment has remained broadly stable, based on findings in HIRI’s quarterly Contractor Business Sentiment Tracker for Q1 2026. Looking ahead, contractors identify energy efficiency improvements, technology integration, and geographic expansion as their greatest growth opportunities, even as products/materials, labor, and increasing competition remain the most significant ongoing challenges.
Growth expectations grew in the first quarter of 2026, showing resilient optimism, particularly tied to energy efficiency and tech upgrades, even as short-term execution and affordability pressures intensify.
Project pipelines for contractors show modest improvement, with bids and awards ticking up quarter-over-quarter and remaining above last year, supported by solid conversion. The average number of projects at various stages in the pipeline over the past three months include:
Meanwhile, backlog is stable, and even slightly easing, which suggests steady but not accelerating demand.
Project mix is shifting slightly toward smaller jobs. The share of projects by cost in Q1 2026 included:
The areas that contractors have identified as the biggest opportunity for growth in the home improvement sector include:
Contractors increasingly cite inflation and broader economic conditions as the primary macroeconomic pressures shaping their outlook over the next 12 months, affecting 49% and 56% of contractors, respectively. At the same time, concern around tariffs has moderated, cited by only 22% of contractors in Q1 2026.Other concerns that contractors believe will impact their business this year include:
However, contractors are also affected by what is concerning property owners right now, and those concerns are manifesting in an increase in project delays and cancellations. About 44% of contractors had scheduled jobs postponed in Q1 2026, a notable increase from 27% in Q1 2025. Additionally, 10% had a scheduled job canceled, compared to 4% in the same period last year. Contractors point to budget constraints and affordability, not demand, becoming the primary limiter. Material availability and schedule/timing were the top two drivers of postponements and cancellations in Q1 2026, but budgets and financial reasons jumped from 15% in Q4 2025 to 28% in Q1 2026.
Despite these pressures, sentiment remains relatively optimistic. About 56% of contractors believe the home improvement market will grow “slightly” or “significantly” over the next 12 months. This is a slight decrease from Q4 2025, when 60% of contractors expressed positive sentiments, but is comparatively steady to the 58% who expressed positive sentiments in Q1 2025.A closer look at contractor sentiments in Q1 2026 shows that:
Meanwhile, competitive intensity remains elevated, with 50% of contractors reporting more competition than a year ago and nearly two-thirds anticipating revenue growth. These sentiments demonstrate resilience, albeit in a more contested and cost-sensitive environment than 2025. Looking ahead, manufacturing brands and suppliers should plan for steady demand with flexible pricing and offerings to capture more budget-constrained projects.
Contractor-led home improvement activity is on par with the previous year, with steady numbers throughout the project pipeline. At the start of 2026, project mix has been skewed toward repair and replacement, with most contractors reporting consistent margins relative to 2025.
Project activity remains concentrated in core renovation areas. The areas where projects were completed in Q1 2026 were:
Not only are these key living spaces a top priority for homeowners, but they also possess comparative significance in driving project values. Secondary spaces and exterior add-ons remain more fragmented, suggesting demand is present but less consistent across contractors. Some of the areas that saw significant decreases between Q1 2025 and Q1 2026 include:
The current challenges facing contractors in the home improvement industry include:
However, both materials and labor have eased notably this quarter, with materials dropping to 41% compared to 50% in Q1 2025 and labor decreasing slightly to 38% compared to 40% in Q1 2025. Of those with material challenges, costs dominate as the top concern, followed by availability (the same as the prior four quarters). These trends signal a shift from supply chain disruption to price-driven strain.
When it comes to labor challenges, the top issues are:
The top challenges that contractors faced when working with manufacturers in Q1 2026 included:
The main challenges that contractors had with suppliers included:
As part of their business strategy, industry manufacturers and suppliers should emphasize value and ROI-driven solutions that help offset cost pressure and support growth in energy-efficient and tech-enabled categories. Additionally, it’s important to focus on cost-efficient, labor-saving solutions that improve productivity under tighter budgets.
Despite 66% contractors reporting increased material prices, only 51% have increased their project costs, with many having to decrease project costs as their clients' budget constraints grow. About one-third of contractors have indicated that they are directly eating some of their margin due to these increased prices. Other ways that contractors have recently responded to changes in material costs include:
HIRI’s Contractor Business Sentiment Tracker Report has also started surveying how contractors’ business revenue has changed in the past 12 months compared to the 12 months prior, as well as how often customers are requesting a scaled-down version of originally quoted projects. In Q1 2026, 79% of contractors said customers at least sometimes request scaled-down versions of quoted projects, and 57% reported that growth in the past year was better relative to the year before. Future iterations of HIRI’s tracker will provide further insight into these sentiments on a quarterly basis.
In terms of whether homeowners are doing more DIY or hiring contractors for home renovations, research from HIRI’s quarterly Home Improvement Project Activity Tracker shows that pure DIY continues to decline. Homeowners are increasingly combining self-performed work with contractor support, balancing cost control with the need for expertise as projects grow more complex and harder to execute independently.
In Q1 2026, the completion methods for home improvement projects were as follows:
The reasons for using a DIY approach have remained mostly consistent over the past year, with the top three reasons being:
The reasons why homeowners choose to hire a professional include:
Contractors’ purchasing remains concentrated in core building materials, with high penetration across structural components, exterior systems, and interior finishes. These categories continue to anchor project activity, reflecting steady demand for foundational and visible upgrades. In contrast, more discretionary or specialized categories, particularly mechanical systems, see comparatively lower purchasing incidence.
However, the purchase incidence for nearly all product categories was down in Q1 2026 compared to Q1 2025, with the exception of:
Contractors use a variety of resources for researching, planning, and getting ideas for home improvement projects. The ones that were used most frequently in Q1 2026 include:
AI adoption is mixed, with roughly a quarter using it daily, a quarter using it weekly, and a quarter not using it at all. At this stage, design and scheduling are the primary use cases.
Among home improvement apps and websites, retailer websites or apps are the most popular, utilized by 77% of contractors for researching, planning, and inspiration. Manufacturer or product brand websites are the next most popular, used by 51% of contractors, followed by supplier or distributor websites, used by 47%. Among social media sources, YouTube is widely used among contractors (80%). Other popular platforms are:
Although contractors also use a variety of channels for purchasing products and materials for projects, shopping remains store-centric, with big-box retailers dominating and transactions largely planned and project-based. In Q1 2026, the channels that contractors used for purchasing products included:
Contractors are typically also picking up their order in the physical store. Other methods used to fulfill or receive orders included:
For product manufacturers, it’s important to strengthen digital visibility while ensuring in-store availability and execution in high-demand project categories.
HIRI’s Quarterly Contractor Business Sentiment Tracker, completed in partnership with The Farnsworth Group, provides a comprehensive view of home improvement contractor project activities and factors influencing their operations. The study also examines how economic and industry trends are impacting contractors’ businesses and attitudes.
Become a member of HIRI to download the full report. HIRI members also have exclusive access to $1M in home improvement specific research reports that offer a wide range of broader home improvement information to help businesses make data-driven decisions.
Project activity for contractors remains concentrated in core renovation areas, including bathrooms, kitchens, and primary living spaces, based on HIRI's data from Q1 2026. These trends reinforce these key living spaces as a priority for homeowners, as well as their comparative significance in driving project values. Secondary spaces and exterior add-ons remain more fragmented, suggesting demand is present but less consistent across contractors.
The purely DIY approach to home improvement is declining as homeowners increasingly combine self-performed work with contractor support, based on research from HIRI’S quarterly Home Improvement Project Activity Tracker. In Q1 2026, the completion methods for home improvement projects were DIY, including non-paid help (39%); both DIY and contractor (46%); and hiring a contractor (15%). The top reasons why homeowners choose to hire a professional include technical expertise (61%); work quality (54%); guaranteed workmanship (43%); and specialized tools/equipment (43%).
Contractor-led home improvement activity is on par with the previous year, with steady numbers throughout the project pipeline. At the start of 2026, project mix is skewed toward repair and replacement, with most contractors reporting consistent margins relative to 2025. Additionally, home improvement project pipelines for contractors show modest improvement, with bids and awards ticking up quarter-over-quarter and remaining above last year, supported by solid conversion. Meanwhile, backlog is stable, and even slightly easing, which suggests steady but not accelerating demand.
The current challenges facing contractors in the home improvement industry include products/materials, labor, and increasing competition. However, both materials and labor eased notably in Q1 2026, with materials dropping to 41% compared to 50% in Q1 2025 and labor decreasing slightly to 38% compared to 40% in Q1 2025. Of those with material challenges, costs dominate as the top concern, followed by availability (the same as the prior four quarters). These trends signal a shift from supply chain disruption to price-driven strain.
Contractors increasingly cite inflation and broader economic conditions as the primary macroeconomic pressures shaping their outlook over the next 12 months, affecting 49% and 56% of contractors, respectively. Contractors are also affected by what is concerning property owners right now, and those concerns are manifesting in an increase in project delays and cancellations. About 44% of contractors had scheduled jobs postponed in Q1 2026, a notable increase from 27% in Q1 2025. Additionally, 10% had a schedule job canceled, compared to 4% in the same period last year. Contractors point to budget constraints and affordability, not demand, becoming the primary limiter.