April 2024 Update to the US Size of Market and Economic Conditions

Updated Home Improvement Market Size and Outlook for 2024 Through 2028

Apr 10, 2024

It’s safe to say the hous­ing mar­ket cur­rent­ly is in a sub­dued state in the U.S., but the out­look for home improve­ment spend­ing is still opti­mistic as we look ahead to the lat­ter half of 2024 and 2025.

While growth in the mar­ket slowed in 2023 com­pared to the boom of years pri­or, and retail sales were com­par­a­tive­ly low­er in Jan­u­ary 2024 when com­pared year over year, HIRI’s lat­est Home Improve­ment Size of Mar­ket fore­cast is positive.

Infla­tion already seems to be sta­bi­liz­ing some­what, and a cut to fed­er­al inter­est rates is antic­i­pat­ed lat­er this year, and indi­vid­u­als are feel­ing more con­fi­dent about the state of the econ­o­my and spend­ing. Builder con­fi­dence also appears to be recov­er­ing after sharp declines in 2022.

All of these vari­ables give build­ing mate­ri­als man­u­fac­tur­ers and retail­ers plen­ty to fac­tor into their deci­sion-mak­ing as they strate­gize and plan for the months ahead.

What is the Home Improvement Market Outlook?

With a mixed fore­cast for the home improve­ment mar­ket, it can be chal­leng­ing to know what lev­el of opti­mism to embrace for those oper­at­ing in the indus­try. To have a fuller pic­ture of the size and state of the mar­ket, here are a few indi­ca­tors you should pay atten­tion to head­ing into the sec­ond half of 2024:

1. The Home Improvement Market is Growing, Just More Slowly

Last year, the total home improve­ment mar­ket declined by 1.8%, which rep­re­sents neg­a­tive growth, but the future looks a lit­tle brighter. Con­sumer mar­ket sales — which account for a larg­er por­tion of the home improve­ment mar­ket — are expect­ed to increase by 3.2% in 2024, which is twice as high as pro­fes­sion­al mar­ket sales, accord­ing to our recent U.S. Home Improve­ment Prod­ucts Mar­ket Fore­cast.

How­ev­er, in 2025, there is expect­ed to be a switch, with the pro­fes­sion­al mar­ket accel­er­at­ing more swift­ly in terms of growth. In gen­er­al, con­sumer mar­ket growth is expect­ed to be about 3%, on aver­age, from 2026 through 2028, and the pro­fes­sion­al mar­ket is expect­ed to increase about 5% over the same peri­od. Spend­ing in the con­sumer mar­ket should reach about $441.2 bil­lion across all build­ing prod­uct cat­e­gories by 2028, while the pro­fes­sion­al mar­ket is expect­ed to reach rough­ly $213.3 billion.

2. Noticeable Variations Exist Among Building Product Categories

Most build­ing prod­uct cat­e­gories saw a spike in com­pound annu­al growth rates (CAGR) from 2019 to 2023. This year, that growth is expect­ed to decrease sig­nif­i­cant­ly — even when account­ing for infla­tion-adjust­ed rates.

Among con­sumers, few build­ing prod­uct cat­e­gories that seem to be con­sis­tent from year to year, based on infla­tion-adjust­ed growth rates, include 

  • Nurs­ery stock and soil treatments

  • Lawn and gar­den equip­ment and supplies

  • Hard­ware

  • Tools

One thing to note is the fluc­tu­a­tions among lum­ber and relat­ed prod­ucts through 2028. For exam­ple, we antic­i­pate see­ing a remark­ably high jump in growth for ply­wood and relat­ed prod­ucts this year, before that prod­uct cat­e­go­ry slides back in the oppo­site direc­tion the fol­low­ing year. Mean­while, the fore­cast shows neg­a­tive growth for dimen­sion­al lum­ber and boards in 2024, before a spike in 2025 to 2028. 

The high­est spend­ing from DIY home­own­ers takes place in the lawn & gar­den equip­ment and sup­plies; elec­tri­cal sup­plies; major house­hold appli­ances; and plumb­ing sup­plies categories. 

For pro­fes­sion­al con­trac­tors, dimen­sion­al lum­ber and boards; elec­tri­cal sup­plies; paint and preser­v­a­tives; and hard-sur­face floor cov­er­ings are the cat­e­gories with the high­est amount of spending.

3. Retail Sales are Currently Declining

It’s typ­i­cal for retail sales of build­ing mate­ri­als, gar­den equip­ment, and sup­plies deal­ers (BMGESD) to fluc­tu­ate through­out the year. We tend to see high­er num­bers in the mid­dle of the year, or April through August. How­ev­er, sales in these cat­e­gories were low­er in the third quar­ter of 2023 than the same months of 2022. Jan­u­ary was a sim­i­lar sto­ry, accord­ing to our March 2024 Eco­nom­ic and Indus­try Update.

Advance retail sales were down 6.4% from Jan­u­ary 2023, but also high­er than what was report­ed in Jan­u­ary 2022. Retail sales of build­ing mate­ri­als and sup­plies deal­ers have fol­lowed a sim­i­lar trajectory. 

Addi­tion­al­ly, high inter­est rates and tight inven­to­ry on exist­ing homes con­tin­ues to impact remod­el­ing activ­i­ty. Accord­ing to the Joint Cen­ter for Hous­ing Stud­ies of Har­vard Uni­ver­si­ty, the mar­ket fore­cast has annu­al spend­ing on improve­ments and repairs falling from $489 bil­lion today to $452 bil­lion over the com­ing four quar­ters. For­tu­nate­ly, that rate of mar­ket decline is pro­ject­ed to decel­er­ate in the sec­ond part of 2024.

Advance Retail Sales of Building Materials, Garden Equipment and Supplies Dealers

4. LEI Declines to Two-Year Low Before Inching Up

The Lead­ing Eco­nom­ic Index (LEI), which rep­re­sents a com­pos­ite of 10 dif­fer­ent fac­tors that illus­trate the state of the U.S. econ­o­my, also has been in decline, based on data from the Con­fer­ence Board. In Jan­u­ary, it was at the low­est point it has been in the past two years, hav­ing decreased an addi­tion­al 0.4% from Decem­ber 2023. How­ev­er, the decline may have bot­tomed out. A press release from the Con­fer­ence Board stat­ed that the LEI rose by 0.1% in Feb­ru­ary of this year, the first increase since Feb­ru­ary 2022. This increase was attrib­uted to res­i­den­tial con­struc­tion, along with stock prices and strong week­ly hours worked.

The Conference Board Leading Economic Index (LEI)

5. Cuts to the Federal Funds Rate are Expected Later This Year

Cur­rent­ly, the fed­er­al funds rate is set at 5.25% to 5.5%, and the Fed­er­al Open Mar­ket Com­mit­tee (FOMC) opt­ed to keep it unchanged dur­ing their most recent meet­ing in March. There has been steady eco­nom­ic activ­i­ty, includ­ing low unem­ploy­ment rates and strong job gains. And final­ly, we’re see­ing signs of infla­tion lev­el­ing out — although it remains high. 

It is still pro­ject­ed that there will be a cut to fed­er­al inter­est rates some­time this year, like­ly in the sec­ond half of 2024, as infla­tion comes down, the Nation­al Asso­ci­a­tion of Home Builders (NAHB) report­ed. What this means for the hous­ing mar­ket is that while mort­gage rates con­tin­ue to hov­er in the 6% range, they should move low­er as 2024, and 2025, pro­gress­es, accord­ing to NAHB’s projections.

6. Real Disposable Income Increased in 2023

Last year, declin­ing food and ener­gy prices allowed wage gains to out­pace infla­tion and for real dis­pos­able income to grow by more than 4% in 2023, accord­ing to data com­piled by S&P Glob­al Mar­ket Intelligence. 

This came after dis­pos­able income fell by 6% in 2022 as the fis­cal stim­u­lus end­ed and infla­tion took off. In 2024, the growth of dis­pos­able income by rough­ly 2.8% will con­tin­ue to sup­port con­sumer spend­ing. And although that growth may not be dra­mat­ic from 2025 through 2028, steady growth and steady spend­ing bodes well for home improve­ment, which is an already in demand sec­tor among consumers. 

As of Jan­u­ary 2024, con­sumer sen­ti­ment was at the high­est point it has been in the past two years, accord­ing to research from the Uni­ver­si­ty of Michi­gan. This is anoth­er impor­tant indi­ca­tor in terms of spend­ing for home improve­ment activ­i­ties and materials.

University of Michigan Consumer Sentiment Index

7. Housing Development and Construction Costs Remains High

The home improve­ment prod­ucts mar­ket is quite sen­si­tive to the health of the hous­ing sec­tor. On one hand, house­holds have been steadi­ly increas­ing over the past two years, end­ing up 1.3% high­er in 2023 over 2022. On the oth­er hand, the res­i­den­tial hous­ing sup­ply con­tin­ues to be heav­i­ly con­strained in the U.S., due in part to the high cost of devel­op­ment and home construction. 

We saw about 1.4 mil­lion hous­ing starts in 2023, which is low­er than the total for 2022, but high­er than any year between 2006 and 2020. Accord­ing to data from the NAHB, pri­vate res­i­den­tial con­struc­tion spend­ing rose con­sis­tent­ly dur­ing the final quar­ter of 2023, with approx­i­mate­ly $864.9 bil­lion spent on pri­vate res­i­den­tial con­struc­tion last year. Exist­ing home sales were dis­mal in 2023, with inven­to­ry reach­ing record lows in 2023. 

The fore­cast for 2024 is that hous­ing starts and exist­ing home sales will be more robust. Mean­while, fueled by the man­u­fac­tur­ing and pow­er cat­e­gories, spend­ing for pri­vate non­res­i­den­tial con­struc­tion was up more than 19% in 2023 com­pared to the year prior. 

U.S. Censue Bureau Count of Households

Responding to Changes in the Home Improvement Market

As indi­cat­ed, there are sev­er­al chal­lenges to keep an eye on mov­ing for­ward into 2024, but also some pos­i­tive indi­ca­tors that give rea­son for opti­mism. The best strat­e­gy for build­ing prod­uct man­u­fac­tur­ers and retail­ers is to stay up to date with devel­op­ments and trends with­in the home improve­ment mar­ket.

The Home Improve­ment Research Insti­tute (HIRI) is a non-prof­it, serv­ing it’s mem­bers with a wide range of research and data that is spe­cif­ic to the home improve­ment indus­try to give you a cur­rent and com­pre­hen­sive under­stand­ing of what’s hap­pen­ing in the indus­try so your com­pa­ny can make effec­tive plans.

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