2024 Home Improvement Spend Outlook

2024 Home Improvement Spend Outlook: Economic Uncertainty's Impact To Ease and Encourage Increased Consumer Spending

Aug 07, 2023

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. 

How Consumer Sentiments Impact Home Improvement Spend

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.

When Consumer Sentiment is Low, Home Improvement Project Activity Decreases

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.

Planned Project Starts vs. Monthly Retail Sales Provided by The Farnsworth Group

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.

How Discretionary Spending and Savings Rates Impact Home Improvement Spend

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.

How Credit Accessibility Impact Home Improvement Spend

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.

2024 and 2025 Home Improvement Spending Outlook

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. 

Stay on Top of Changes in Customer Sentiments and Home Improvement Behaviors

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.

Schedule a Demo

Stay Informed

Sign up for the HIRI newslet­ter to stay informed about the research we’re con­duct­ing, home improve­ment indus­try trends, and infor­ma­tion on our upcom­ing Home Improve­ment Insights Summit.