Industry Research
Renovation Barometer
Home Remodeling Firms Mixed on Market Outlook in Q1 2021
Firms report a positive outlook overall, with construction firm expectations tempered, the Q1 Houzz Barometer shows
Remodeling professionals expressed tempered hope about their business prospects for the first three months of the year, new data from Houzz shows. Their sentiment is split by industry sector, with design and architecture firms expressing greater optimism than they did at the end of last year, while construction businesses offer less, according to the Q1 2021 Houzz Renovation Barometer. Given market conditions, that split is understandable.
“Businesses in the home remodeling industry are kicking off the year with cautious optimism,” says Marine Sargsyan, Houzz senior economist. “Favorable interest rates and increased pandemic-related demand for remodeling have given architectural and design firms confidence for Q1 compared with the previous quarter.
“Yet construction businesses have tempered their expectations slightly as they continue to face supply chain constraints, labor shortages and increasing costs for materials, such as lumber.”
“Businesses in the home remodeling industry are kicking off the year with cautious optimism,” says Marine Sargsyan, Houzz senior economist. “Favorable interest rates and increased pandemic-related demand for remodeling have given architectural and design firms confidence for Q1 compared with the previous quarter.
“Yet construction businesses have tempered their expectations slightly as they continue to face supply chain constraints, labor shortages and increasing costs for materials, such as lumber.”
A score higher than 50 indicates that more firms reported increases than decreases in their business expectations. Q2 2020 marked the first time since the Houzz Barometer began in 2015 that scores fell below 50.
Construction Firms
1. Expectations for business activity decreased somewhat. Build-only remodelers and design-build remodelers reported slightly lowered expectations for business activity going into the first quarter of 2021 compared with the previous quarter. The Expected Business Activity Indicator decreased from 73 to 70 for Q1. However, that level is still significantly up from the all-time low of 18 seen at the start of the second quarter of last year, in the early days of the pandemic.
Compared with a year ago, the Expected Business Activity Indicator for construction firms is down 4 points.
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.
Construction Firms
1. Expectations for business activity decreased somewhat. Build-only remodelers and design-build remodelers reported slightly lowered expectations for business activity going into the first quarter of 2021 compared with the previous quarter. The Expected Business Activity Indicator decreased from 73 to 70 for Q1. However, that level is still significantly up from the all-time low of 18 seen at the start of the second quarter of last year, in the early days of the pandemic.
Compared with a year ago, the Expected Business Activity Indicator for construction firms is down 4 points.
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.
2. Project wait times rose nationally. With demand for their services strong amid the pandemic, 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 7.4 weeks, up 0.2 week compared with the start of the previous quarter.
One year ago, the national average wait time was 5.4 weeks, meaning the average wait time has risen by 2 weeks year over year.
Among construction firms, design-build remodelers have the longest average wait time before they can take on a midsize project: 8 weeks, up 0.9 week from the start of the prior quarter. Wait times for build-only remodelers average 6.8 weeks, down 0.5 week compared with the start of the previous quarter.
One year ago, the national average wait time was 5.4 weeks, meaning the average wait time has risen by 2 weeks year over year.
Among construction firms, design-build remodelers have the longest average wait time before they can take on a midsize project: 8 weeks, up 0.9 week from the start of the prior quarter. Wait times for build-only remodelers average 6.8 weeks, down 0.5 week compared with the start of the previous quarter.
Backlogs range quite a bit by region, as this map shows. The East South Central division of the U.S. (Alabama, Kentucky, Mississippi, Tennessee) has the shortest average wait time (5.2 weeks), while the East North Central division (Illinois, Indiana, Michigan, Ohio, Wisconsin) has the longest (9.2 weeks) among the nine geographic divisions as defined by the U.S. Census.
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A score higher than 50 indicates that more firms reported increases than decreases in their recent business activity.
3. Recent business activity decreased significantly. A decrease in new project inquiries and new committed projects in October, November and December pushed the Recent Business Activity Indicator of the Barometer to 62 for construction firms, down 13 points from the previous quarter. Both build-only remodelers and design-build remodelers reported a significant decrease in recent business activity over this period.
Relative to a year ago, this indicator is down 3 points.
The Recent Business Activity Indicator looks at actual activity over the previous 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 committed projects increasing, decreasing or staying the same in the previous three months relative to the three months before that. A score higher than 50 indicates that more firms reported increases than decreases.
3. Recent business activity decreased significantly. A decrease in new project inquiries and new committed projects in October, November and December pushed the Recent Business Activity Indicator of the Barometer to 62 for construction firms, down 13 points from the previous quarter. Both build-only remodelers and design-build remodelers reported a significant decrease in recent business activity over this period.
Relative to a year ago, this indicator is down 3 points.
The Recent Business Activity Indicator looks at actual activity over the previous 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 committed projects increasing, decreasing or staying the same in the previous three months relative to the three months before that. A score higher than 50 indicates that more firms reported increases than decreases.
Architectural and Design Services Firms
1. Business activity expectations increased. Architects and interior designers reported higher expectations for new business activity for the first quarter of 2021 compared with the start of the previous quarter. Their score of 68 for the Expected Business Activity Indicator shows that more firms are expecting increases in new business activity than are expecting decreases. This measure is up 6 points from the start of Q4 2020, when it was 62.
The score now stands where it did one year ago.
Architects reported a 12-point increase in overall expectations, to 69, relative to the start of Q4 2020. Interior designers’ expectations decreased by 3 points, to 67, relative to the start of the fourth quarter.
1. Business activity expectations increased. Architects and interior designers reported higher expectations for new business activity for the first quarter of 2021 compared with the start of the previous quarter. Their score of 68 for the Expected Business Activity Indicator shows that more firms are expecting increases in new business activity than are expecting decreases. This measure is up 6 points from the start of Q4 2020, when it was 62.
The score now stands where it did one year ago.
Architects reported a 12-point increase in overall expectations, to 69, relative to the start of Q4 2020. Interior designers’ expectations decreased by 3 points, to 67, relative to the start of the fourth quarter.
2. Wait times increased nationally. The Project Backlog Indicator for architectural and design firms averages 5.6 weeks nationally at the start of the first quarter of 2021, up 1.1 weeks compared with the start of Q4 2020.
Compared with a year ago, when wait times were 4.6 weeks, wait times are up 1 week.
Taking a closer look by professional type, architects have longer wait times to take on a new midsize project (6.1 weeks, up 1.8 weeks relative to the start of the previous three months) than do interior designers (4.9 weeks, up 0.1 week relative to the start of the previous three months).
Compared with a year ago, when wait times were 4.6 weeks, wait times are up 1 week.
Taking a closer look by professional type, architects have longer wait times to take on a new midsize project (6.1 weeks, up 1.8 weeks relative to the start of the previous three months) than do interior designers (4.9 weeks, up 0.1 week relative to the start of the previous three months).
Again, backlogs vary by region, as this map shows. The West North Central division of the U.S. (Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota) has the shortest average wait time (3.3 weeks), while the Mountain division (Arizona, Colorado, Idaho, Montana, New Mexico, Utah, Wyoming) has the longest (6.6 weeks).
3. Recent business activity rose. In contrast to construction firms, architecture and design firms saw an uptick in recent project inquiries and new committed projects in October, November and December. Their score for the Recent Business Activity Indicator of the Barometer increased to 64, a 3-point rise from the prior three months. Relative to the same period a year ago, the indicator is up 2 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.
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Tell us: Whether you’re a pro or a homeowner, we’d love to hear how this report compares with your experiences. Please share in the Comments.
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If you’re a pro and would like to offer your insights on market conditions in your area by joining the Barometer panel, please click here.
Read more on this and past Barometer reports
Tell us: Whether you’re a pro or a homeowner, we’d love to hear how this report compares with your experiences. Please share in the Comments.
More on Houzz
Read more stories about remodeling trends
Learn about Houzz Pro software
Talk with your peers in the Pro-to-Pro discussions
Join the Houzz Trade Program
“We have observed an increase throughout the pandemic in the adoption of online tools that help residential design and construction firms connect with customers and manage their businesses,” says Liza Hausman, Houzz vice president of Industry Marketing. “The use of online invoicing and payments, for example, has grown steadily over the past few quarters across industry groups, which has been echoed by activity we’re seeing on our Houzz Pro business management and marketing software.”
Architecture and design firms have responded to the pandemic with safety guidelines and remote-collaboration tools, and a growing number of businesses in the architectural and design services, as well as the construction sector, have adopted online invoicing and payments (39% and 31%, respectively, in Q1 2021, versus 33% and 24% in Q3 2020).
Read on to find out more about what remodeling industry firms said about current business conditions. We’ll look first at construction companies and then at firms in the architectural and design services areas. We’ll start with what these firms expect for the next three months, then look at their project wait times. Lastly, we’ll review their business activity over the previous three months.
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