Home Pros Moderately Optimistic for 2023 After a Slow 2022
Most industry groups expect slow but continued growth, according to the 2023 U.S. Houzz State of the Industry report
At least half of residential building and design professionals feel confident that business will be good or even very good in 2023 — albeit with significant challenges, according to the 2023 Houzz State of the Industry report. Businesses expect demand for their services to increase, along with revenue and profits, though at a much slower rate of growth than last year. Firms also saw a lower revenue growth rate in 2022 compared with the four-year high reported in 2021.
“The home renovation and design industry experienced remarkable growth in recent years. However, that growth rate is unlikely to continue in the current economy,” says Marine Sargsyan, Houzz staff economist. “The findings from the 2023 Houzz State of the Industry reflect tempered optimism among professionals, who expect their businesses to experience slowed revenue growth and face headwinds from increased costs of doing business.”
Read on to learn more about what industry pros expect for 2023 as well as how their businesses fared last year.
“The home renovation and design industry experienced remarkable growth in recent years. However, that growth rate is unlikely to continue in the current economy,” says Marine Sargsyan, Houzz staff economist. “The findings from the 2023 Houzz State of the Industry reflect tempered optimism among professionals, who expect their businesses to experience slowed revenue growth and face headwinds from increased costs of doing business.”
Read on to learn more about what industry pros expect for 2023 as well as how their businesses fared last year.
Outlook for 2023
Favorable outlook overall. At least half of residential remodeling and design firms across industry sectors (50% to 56%) say they expect 2023 to be a good or very good year overall for their businesses.
More than half of interior designers (56%), general contractors (54%) and design-build companies (54%) expect 2023 to be a good or very good year. Architects were the least optimistic, with 50% expecting a good or very good year.
Across the seven business categories, at least a third have a neutral outlook for 2023, while relatively few expect a poor performance.
Favorable outlook overall. At least half of residential remodeling and design firms across industry sectors (50% to 56%) say they expect 2023 to be a good or very good year overall for their businesses.
More than half of interior designers (56%), general contractors (54%) and design-build companies (54%) expect 2023 to be a good or very good year. Architects were the least optimistic, with 50% expecting a good or very good year.
Across the seven business categories, at least a third have a neutral outlook for 2023, while relatively few expect a poor performance.
Tempered expectations for revenue growth. For 2023, businesses across all industry sectors anticipate a positive rate of revenue growth that is lower than they experienced last year.
Decorating specialists, who expect their revenue growth to be an average of 6.1% in 2023, are the most bullish of the seven professional groups. Architects, who typically have the most conservative average expected growth estimates, expect 0.3% revenue growth. General contractors, design-build companies, and building and renovation specialists anticipate growth of 2.9%, 2.3% and 1.3%, respectively.
Decorating specialists, who expect their revenue growth to be an average of 6.1% in 2023, are the most bullish of the seven professional groups. Architects, who typically have the most conservative average expected growth estimates, expect 0.3% revenue growth. General contractors, design-build companies, and building and renovation specialists anticipate growth of 2.9%, 2.3% and 1.3%, respectively.
Increased demand anticipated despite economic uncertainty. More businesses in six of the seven surveyed groups expect an increase in demand for their services (21% to 32%) than expect a decrease (12% to 24%).
Decorating specialists, landscaping and outdoor specialists, and interior designers (32%, 26% and 26%, respectively) feel the most confident. Architects again diverge, with a slightly larger share (24%) expecting lower demand for their services than those expecting higher demand (22%).
The prevailing sentiment among remodeling and design businesses is that both the local and national economies will worsen in 2023.
Decorating specialists, landscaping and outdoor specialists, and interior designers (32%, 26% and 26%, respectively) feel the most confident. Architects again diverge, with a slightly larger share (24%) expecting lower demand for their services than those expecting higher demand (22%).
The prevailing sentiment among remodeling and design businesses is that both the local and national economies will worsen in 2023.
Expected improvement in product and material availability. More companies expect product and material availability to improve than to worsen in 2023, with interior designers being the most optimistic (46%).
Six of the seven business groups expect product and material costs to increase. The building and renovation sector has the largest share of firms expecting increases (43%). Architects are the only group in which more firms expect costs to decrease (25%) than increase (23%).
Six of the seven business groups expect product and material costs to increase. The building and renovation sector has the largest share of firms expecting increases (43%). Architects are the only group in which more firms expect costs to decrease (25%) than increase (23%).
Review of 2022
Positive but slower growth. Revenue growth in 2022, while positive, was slow compared with 2021 — not a surprise given that 2021’s average growth marked a four-year high.
In 2022, average annual rate of revenue growth ranged from 0.3% (landscape and outdoor specialists) to 6.9% (design-build firms), whereas in 2021 the range was 8.6% (building and renovation specialists) to 11.9% (interior designers).
Revenue growth across all seven groups was lower in 2022 than the anticipated rate reported at the beginning of that year.
Positive but slower growth. Revenue growth in 2022, while positive, was slow compared with 2021 — not a surprise given that 2021’s average growth marked a four-year high.
In 2022, average annual rate of revenue growth ranged from 0.3% (landscape and outdoor specialists) to 6.9% (design-build firms), whereas in 2021 the range was 8.6% (building and renovation specialists) to 11.9% (interior designers).
Revenue growth across all seven groups was lower in 2022 than the anticipated rate reported at the beginning of that year.
Variability in profits. Year-over-year profit increases also were not as widespread in 2022 as in 2021, and profits declined for many. Only architects (40%) and design-build firms (44%) reported profit increases for 2022. Among the other five industry groups, including general contractors and specialty contractors, a larger share reported a decrease than an increase.
Increased business costs. Business costs increased in 2022 as they had in 2021, eating away at profits. Seventy percent to 92% of firms in each industry group reported an increase in the cost of doing business in 2022 compared with 64% to 93% the previous year.
Businesses in the construction sector — GCs, design-build firms, and building and renovation specialists — were among those most likely to cite an increase (91%, 92% and 91%, respectively).
Businesses in the construction sector — GCs, design-build firms, and building and renovation specialists — were among those most likely to cite an increase (91%, 92% and 91%, respectively).
Eased concerns about product availability and volatility. Concerns about the availability of products and materials eased in 2022. No business groups cited it as a top-two business challenge in 2022, versus five of seven groups had done so in 2021.
Price volatility continues to be a top challenge, though that concern also has become less widespread since 2021.
Price volatility continues to be a top challenge, though that concern also has become less widespread since 2021.
Projects for existing homes in the lead. In 2022, for all seven industry groups, projects for existing homes accounted for the largest share of annual gross revenue in 2022 (49% to 71%).
Steady annual gross revenue. The annual gross revenue for most firms remained less than $3 million.
The share of companies reporting more than $3 million in annual gross revenue stayed the same or increased slightly for four of the seven groups in 2022 (1% to 28%) compared with 2021 (1% to 25%). Design-build companies were the most likely to see those numbers — 28% of them in 2022, which was an increase of 3 percentage points over 2021.
The share of companies reporting more than $3 million in annual gross revenue stayed the same or increased slightly for four of the seven groups in 2022 (1% to 28%) compared with 2021 (1% to 25%). Design-build companies were the most likely to see those numbers — 28% of them in 2022, which was an increase of 3 percentage points over 2021.
The complete 2023 Houzz U.S. State of the Industry report can be found here.
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The study, which is conducted annually, represents the views of professionals in seven industry groups: architects, interior designers, building companies (including general contractors, remodelers and builders), design-build firms, building and renovation specialty firms, landscape/outdoor specialty firms and decorating specialty firms.