Throughout 2022 and 2023, consumer sentiments have been low and the result has been postponement of larger home improvement and remodeling projects. As we look towards 2024, with economic uncertainty easing, home improvement spend is also anticipated to resume.
While there are more demand drivers that impact home improvement spending, the data sets below specifically uncover the influence of economic uncertainty on consumer sentiments, as well as the impact of changes in personal savings rates and the accessibility of credit on home improvement spend among U.S. consumers.
Measures of consumer sentiment are leading economic indicators of what can be expected in consumer spending levels. When consumer confidence drops, reduced consumer spending follows, and when consumer confidence rises, spending also begins to increase.
The Conference Board and separately The University of Michigan tracks consumer sentiment, which has been holding at the lowest levels in the past decade throughout 2022 and 2023. In fact, in 2022, consumer sentiment reached a lower level than any point in the last 4 decades including the great recession. However, there has been a rebound in consumer sentiments in 2023, but current sentiments are similar to previous recessionary periods in the 1970s and early 2000s. See HIRI’s most current Economic and Industry Update report for detailed metrics in each of these consumer sentiment indices.
This signals that current consumer confidence among Gen X and Millennial Homeowners and prospective home buyers is currently the lowest in their memory, and their actions corroborate this pessimism and economic uncertainty.
Given that Gen X and Millennials form the largest segment of homebuyers and participants in home improvement projects based on HIRI research, the implications of this economic uncertainty must be considered during demand forecasting efforts.
This state of economic uncertainty becomes even more apparent based on the correlation between planned project starts and actual monthly retail sales. The charts below shows this trend based on FRED data paired with data from the joint monthly tracker of home improvement activities and behaviors of Pros and Homeowners conducted in partnership between The Farnsworth Group and The Home Improvement Research Institute.
You can see that when Homeowners report they are planning to start a project, that monthly retail sales of building materials and home improvement products increases, and that decreases occur in lock step also.
In short, economic uncertainty increases the likelihood that consumers will delay their home improvement projects.
This means that as this consumer uncertainty works itself out, spending is likely to resume, which we have also seen in the first half of 2023 as compared to more notable pauses in home improvement spending in 2022.
Consumer sentiment is not the only leading economic indicator to consider, however, as the desire to spend must be paired with the ability to spend via disposable income and accessibility of credit.
While home equity is at all-time highs, discretionary spend and savings rates are both dropping and we’re still figuring out which is more important to consumers.
As of May 2023 reporting, the Consumer Price Index (CPI) published by the U.S. Bureau of Labor Statistics remains at the highest rates in U.S. history, with daily necessities cutting into consumers’ discretionary funds.
As of June 2023 reporting, the Real Disposable Personal Income (RDPI) of consumers, chained to 2012 dollars,
June 2023 — $15.7M
June 2022 — $15.0M
June 2021 — $15.7M
June 2020 — $16.3
June 2019 — $14.8M
At present, U.S. consumers’ personal savings rates have been hovering between 3 – 5% in 2022 and 2023, which are among the lowest savings rates over the past 60 years. Further, U.S. consumers’ real disposable income (in 2012 dollars) hit its peak in 2021 and has been on the decline.
While cash and savings are the top source of funds for home improvement projects, tapping into various lines of credit is how nearly half of U.S. Homeowners fund at least a portion of their home improvement projects based on findings from the Monthly Home Improvement Tracker.
We know that higher interest rates decrease the likelihood of leveraging home equity and consumers are more likely to rely on cash savings which are dwindling. This suggests that while Homeowner equity is at all time highs, those assets are less liquid due to higher interest rates. High equity has created a sense of stability in the housing market but higher rates is not helping propel discretionary home improvement spend, especially for projects above $5,000.
The good news on the horizon is that consumers are already beginning to anchor their perceptions that rates under 6% represent a good rate. While rates are in some instances above 7%, any decline will likely spur additional home improvement activity. HIRI currently anticipates rates coming down to ~5% sometime in 2025. As rates come down, consumers will leverage credit more often and home improvement will take off again.
Consider how just one year ago, in 2022, 5% mortgage interest rates were considered “unfair” because consumers were comparing those rates to 3% interest rates. Now, 5% would be considered a “good deal” to a consumer who was previously looking at options of 7% or even 8% interest rates.
HIRI’s June 2023 release of the U.S. Size of the Home Improvement Products Market report points towards future growth in the remodeling market as related to home improvement spending by Pros and Consumers.
Our estimates of Professional market sales of home improvement products for years after 2013 are tied to data on private investment in residential improvements as reported in the National Income and Product Accounts by the BEA. We project Professional market sales to decline by 2.6% in 2023 and accelerate to 5.0% in 2024. Growth of Professional market sales is expected to average 4.1% in 2025 – 27.
Consumer Market Growth is expected to tick up in 2024 to 0.8% given the current path for recovery. Existing home sales are projected to decline by 15.9% in 2023 and real disposable income to grow by 3.6%. We project Consumer Market sales to advance by 0.8% in 2024 to $387.5 billion, and for growth to average 3.6% over 2025 – 27.
The Home Improvement Research Institute will continue to relay Homeowner and Pro customer sentiments through various monthly, quarterly, and annual research and reporting. Don’t just skim the highlights — join HIRI for instant access to the full data sets in order to measure industry wide sentiments and spending behaviors in comparison to your company’s internal figures.
The housing and home improvement market continues to change rapidly.
If your brand is to stay relevant to Pros and DIYers while maintaining and gaining market share, you and your team must keep your minds sharp to current industry trends and customer behaviors.
HIRI’s Home Improvement Insights Summit is the premier event delivering the latest insights into consumer and pro customers attitudes, distribution channel shares, and housing macroeconomics.
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