Inside Houzz
Renovation Barometer
Industry Research
Remodeling and Design Firms Confident in 4th-Quarter 2019
The Q4 Houzz Renovation Barometer shows positive sentiment, even though project backlogs dropped year over year
Firms in the residential remodeling industry indicate strong confidence in the market over the next three months, new data from Houzz reveal. However, remodelers also report a number of challenges facing them.
“Businesses report that labor shortages, a shortened renovation season and continued weather disruptions, in addition to rising product costs and economic uncertainty, are contributing to project delays and a shift toward smaller projects,” says Nino Sitchinava, Houzz principal economist.
Unusually wet weather in the first half of the year reduced renovation activity, and even after weather conditions returned to normal, demand from homeowners failed to bounce back, Sitchinava notes. Key evidence of this is that homeowner wait times before a firm can take on a new project have been getting shorter.
“Businesses report that labor shortages, a shortened renovation season and continued weather disruptions, in addition to rising product costs and economic uncertainty, are contributing to project delays and a shift toward smaller projects,” says Nino Sitchinava, Houzz principal economist.
Unusually wet weather in the first half of the year reduced renovation activity, and even after weather conditions returned to normal, demand from homeowners failed to bounce back, Sitchinava notes. Key evidence of this is that homeowner wait times before a firm can take on a new project have been getting shorter.
A score higher than 50 indicates that more firms reported increases than decreases in their business expectations.
Construction Firms
1. Business activity expectations bounced back. Build-only remodelers and design-build remodelers reported increased business activity expectations going into the fourth quarter of 2019. Their positive sentiments lifted the Expected Business Activity Indicator (one component of the Barometer) for construction firms to 74, up 4 points from the third quarter of 2019. This 4-point increase came as a result of increased expectations for inquiries from would-be clients, offset by a slight decline in expectations for new committed projects. That decline “implies businesses do not expect a big increase in new projects that start in Q4,” Sitchinava says.
Compared with one year ago, the Expected Business Activity Indicator for construction firms is down 6 points, meaning that year-over-year sentiment is down.
The Expected Business Activity Indicator is based on survey questions that asked businesses to report whether they expected the number of project inquiries and new projects to increase, decrease or be unchanged in the coming three months compared with the prior three months. A score higher than 50 indicates that more firms expected increases than decreases. Therefore, this part of the Barometer indicates that at the start of fourth-quarter 2019, business expectations for construction firms remain strong.
Construction Firms
1. Business activity expectations bounced back. Build-only remodelers and design-build remodelers reported increased business activity expectations going into the fourth quarter of 2019. Their positive sentiments lifted the Expected Business Activity Indicator (one component of the Barometer) for construction firms to 74, up 4 points from the third quarter of 2019. This 4-point increase came as a result of increased expectations for inquiries from would-be clients, offset by a slight decline in expectations for new committed projects. That decline “implies businesses do not expect a big increase in new projects that start in Q4,” Sitchinava says.
Compared with one year ago, the Expected Business Activity Indicator for construction firms is down 6 points, meaning that year-over-year sentiment is down.
The Expected Business Activity Indicator is based on survey questions that asked businesses to report whether they expected the number of project inquiries and new projects to increase, decrease or be unchanged in the coming three months compared with the prior three months. A score higher than 50 indicates that more firms expected increases than decreases. Therefore, this part of the Barometer indicates that at the start of fourth-quarter 2019, business expectations for construction firms remain strong.
2. Project wait times rose a bit nationally. Construction businesses that are focused on remodeling reported that wait times before they can take on a midsize project from a new client now average 5.2 weeks, up 0.3 week from projected wait times at the start of the previous quarter.
Notably, one year ago the national average was 6.3 weeks, meaning the average wait time has dropped by 1.1 weeks. This quarter’s projected wait times are the third-shortest in two years.
Notably, one year ago the national average was 6.3 weeks, meaning the average wait time has dropped by 1.1 weeks. This quarter’s projected wait times are the third-shortest in two years.
Among construction firms, design-build remodelers have the longest average wait time before they can take on a midsize project: 6.3 weeks, up from 5.2 weeks at the start of the prior quarter. Wait times for build-only remodelers average 4.2 weeks, down from 4.6 weeks at the start of the previous quarter.
Of course, backlogs vary significantly by region, as this map shows. The East South Central region of the U.S. (Alabama, Kentucky, Mississippi, Tennessee) has the shortest average wait time (3 weeks), while the East North Central region (Illinois, Indiana, Michigan, Ohio, Wisconsin) has the longest (6.6 weeks).
Of course, backlogs vary significantly by region, as this map shows. The East South Central region of the U.S. (Alabama, Kentucky, Mississippi, Tennessee) has the shortest average wait time (3 weeks), while the East North Central region (Illinois, Indiana, Michigan, Ohio, Wisconsin) has the longest (6.6 weeks).
A score higher than 50 indicates that more firms reported increases than decreases in their recent business activity.
3. Recent business activity rose. An uptick in new-project inquiries and new committed projects in July, August and September lifted the Recent Business Activity component of the Barometer to 63 for construction firms, up 5 points from 58 the previous quarter. However, relative to a year ago, this indicator is down significantly (14 points).
“All this tells me that the second half of 2019 is by no means going to offset the first half of 2019,” Sitchinava says. “It is still good that the Recent Business Activity Indicator remained above 50, in the 60s, implying that at least some pros are seeing quarter-over-quarter gains in activity. This should mean that the market growth in 2019 should remain positive, but likely quite low.”
The Recent Business Activity component of the Barometer looks at actual activity over the past three months. In contrast with the Expected Business Activity and Project Backlog indicators, which look forward in time, the Recent Business Activity Indicator looks back. It’s based on survey questions that ask businesses to report whether they observed the actual number of project inquiries and new projects increasing, decreasing or staying the same in the past three months relative to the three months before that.
3. Recent business activity rose. An uptick in new-project inquiries and new committed projects in July, August and September lifted the Recent Business Activity component of the Barometer to 63 for construction firms, up 5 points from 58 the previous quarter. However, relative to a year ago, this indicator is down significantly (14 points).
“All this tells me that the second half of 2019 is by no means going to offset the first half of 2019,” Sitchinava says. “It is still good that the Recent Business Activity Indicator remained above 50, in the 60s, implying that at least some pros are seeing quarter-over-quarter gains in activity. This should mean that the market growth in 2019 should remain positive, but likely quite low.”
The Recent Business Activity component of the Barometer looks at actual activity over the past three months. In contrast with the Expected Business Activity and Project Backlog indicators, which look forward in time, the Recent Business Activity Indicator looks back. It’s based on survey questions that ask businesses to report whether they observed the actual number of project inquiries and new projects increasing, decreasing or staying the same in the past three months relative to the three months before that.
Architectural and Design Services Firms
1. Firms soften their business activity expectations. In contrast with construction firms, architects and interior designers reported slightly lower expectations for new business activity for the final quarter of 2019 compared with the start of the previous quarter. Their score of 67 for the Expected Business Activity Indicator shows that more firms are expecting increases than are expecting decreases. However, this score is down 4 points from the start of Q3.
Despite the quarterly decline, this score is up 3 points compared with the same period a year ago.
1. Firms soften their business activity expectations. In contrast with construction firms, architects and interior designers reported slightly lower expectations for new business activity for the final quarter of 2019 compared with the start of the previous quarter. Their score of 67 for the Expected Business Activity Indicator shows that more firms are expecting increases than are expecting decreases. However, this score is down 4 points from the start of Q3.
Despite the quarterly decline, this score is up 3 points compared with the same period a year ago.
2. Wait times are down nationally. The Project Backlog Indicator for architectural and design firms fell to an average of 4.1 weeks nationally at the start of the fourth quarter, a drop of 0.6 week from the start of the previous quarter. This is the first drop this year, as wait times had until this quarter remained steady throughout 2019.
Compared with one year ago, when wait times were 5.1 weeks, projected wait times have dropped by 1 week.
Compared with one year ago, when wait times were 5.1 weeks, projected wait times have dropped by 1 week.
Taking a closer look by professional type, architects have longer wait times to take on a new midsize project (4.2 weeks, down 1 week relative to the start of the prior three months) compared with interior designers (3.8 weeks, down 0.1 week relative to the start of the prior three months).
Again, backlogs vary significantly by region, as this map shows. The West North Central region of the U.S. (Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota) has the shortest average wait time (3.6 weeks), while the Pacific region (Alaska, California, Hawaii, Oregon, Washington) and East South Central region (Alabama, Kentucky, Mississippi, Tennessee) have the longest (4.4 weeks).
Again, backlogs vary significantly by region, as this map shows. The West North Central region of the U.S. (Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota) has the shortest average wait time (3.6 weeks), while the Pacific region (Alaska, California, Hawaii, Oregon, Washington) and East South Central region (Alabama, Kentucky, Mississippi, Tennessee) have the longest (4.4 weeks).
3. Recent business activity is down. The score related to recent project inquiries and new committed projects in July, August and September declined to 57, a 6-point drop from the prior three months. Relative to the same period a year ago, this indicator is down 3 points.
The Houzz Renovation Barometer is based on a quarterly online survey sent to a national panel of U.S. businesses with profiles on Houzz. The Barometer includes three components: Expected Business Activity, Recent Business Activity and Project Backlog (or wait times). Expectations and business activity data are smoothed out to allow for predictable seasonal fluctuations, while wait-time data are not.
The 2019 Q4 Houzz Renovation Barometer garnered responses from 2,006 firms and was fielded from September 26 through October 9.
If you would like to offer your insights on market conditions in your area by joining the Barometer panel, please click here.
Read more Barometer reports
Tell us: How does this report compare with your firm’s experience? Please share in the Comments.
The Houzz Renovation Barometer is based on a quarterly online survey sent to a national panel of U.S. businesses with profiles on Houzz. The Barometer includes three components: Expected Business Activity, Recent Business Activity and Project Backlog (or wait times). Expectations and business activity data are smoothed out to allow for predictable seasonal fluctuations, while wait-time data are not.
The 2019 Q4 Houzz Renovation Barometer garnered responses from 2,006 firms and was fielded from September 26 through October 9.
If you would like to offer your insights on market conditions in your area by joining the Barometer panel, please click here.
Read more Barometer reports
Tell us: How does this report compare with your firm’s experience? Please share in the Comments.
“It is promising that expectations in the construction sector bounced back up from some of the lowest that we’ve seen last quarter,” Sitchinava says. “The architectural and design sector outlook also remains strong despite a mild quarter-over-quarter dip.” However, “the fact that the backlogs are down year over year is quite concerning.”
Read on to find out what remodeling industry firms had to say about the business conditions they’re facing. We’ll start with construction companies and then move on to firms in the architectural and design services areas. First we’ll look at what these firms expect for the next three months, then at their project wait times, and finally at their business activity over the last three months.