Updated Home Improvement Market Size and Outlook for 2024 Through 2028

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.

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.

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.

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. 

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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