4 Predictions on the Future of Homebuilding and Remodeling from the HIRI Summit

  • Categories:

    Industry Trends

  • Date:

    October 4, 2022

4 Predictions on the Future of Homebuilding and Remodeling from the HIRI Summit

Industry Trends

Cautiously optimistic.

That may be the best way to summarize the mood and theme of this year’s Home Improvement Research Institute Home Improvement Insights Summit. With the slight pall of a looming recession in the back of everyone’s minds, it was refreshing to hear that there are silver linings we could still see in the coming months and years.

For instance, Grant Farnsworth kicked off the two-day event by sharing that the total home improvement market is projected to grow by more than 7% this year, thanks to an early spike in DIY spending followed by a spike in contractor work.

As the sessions proceeded, the perspectives of industry leaders remained realistic yet surprisingly positive despite recessionary concerns. Each speaker introduced a myriad of variables that provide reasons for optimism while making it difficult to land on a single answer as to what the future holds.

Drawing from what I learned at the 2022 HIRI Summit, I’ve highlighted four intriguing ways to interpret the near future of the homebuilding and remodeling markets. As we walk through these summaries, keep in mind that these are not clear facts, but informed predictions based on valuable data gathered from reliable economic and industry sources.

Prediction 1: New homes will be less affordable, while the looming recession will be mild

Looking through a greater economic lens to determine the housing market outlook, Danushka Nanayakkara-Skillington, assistant vice president, forecasting and analysis for the National Association of Homebuilders, predicts that we will see a mild recession with significant challenges to builders.

By analyzing the economic outlook from a macro perspective, she compared these numbers with the supply and demand factors facing the home construction industry to determine a forecast of what is to come. Here’s a quick look at some important conclusions she drew from her research:

  • The NAHB/Wells Fargo Housing Market Index is currently at 46 — anything below 50 signals that conditions are worsening. That is a strong indicator that builder confidence is low and buyer traffic is falling.

  • Single-family homebuilding starts will decline through 2023 due to increasing interest rates, with a predicted rebound in 2024.

  • Multifamily construction will remain strong through 2022 but will see a 7% decline next year primarily driven by high rent costs.

Another contributing factor to the fluctuating housing market is the entrance of millennials.

“Millennials, the largest living generation in the country right now — 45 million households — are coming through peak homebuying years, and we do not have enough housing to support them,” Nanayakkara-Skillington said.

Millennials constitute the largest group of homebuyers (46%) and will drive up demand at a time when new homes are on the decline and house affordability rates are historically low. NAHB’s Housing Opportunity Index is the lowest it’s been in decades, signaling that homeownership is a less accessible prospect than it was in the past.

Only 43% of new and existing homes sold between April and June of this year were within the price range for a family earning the U.S. median income of $90,000. This is a sharp drop from the 57% of homes sold from January to March that were affordable to the same demographic.

With housing affordability rapidly declining over the next two years, the challenge becomes finding new ways to create more affordable housing stock. Communities with the ability to do so will likely see incredible growth.

Prediction 2: Remodeling will continue to grow, but so will labor shortages

Despite the outlook from Nanayakkara-Skillington on new construction, there is a silver lining.

“Sometimes things that are bad for new home construction aren’t so bad for remodeling,” said Carlos Martín, project director of the Remodeling Futures Program for the Harvard Joint Center for Housing Studies. “Certainly the increases in price means people have more equity in their homes and incentive to invest in their homes.”

During the panel discussion “Fundamentals Impacting Home Improvement,” Martín focused on how national policies such as the recently passed Infrastructure Investment and Jobs Act will affect the market. While the remodeling industry will still see growth over the next few years, it will soften over the next year or so.

One of the reasons for this softening is the threat to the remodeling and construction labor force. According to Martín, we have seen 15 straight months of more people quitting and leaving the industry than for any other reason (e.g., layoffs, termination, retirement, etc.).

Federal policies such as the IIJA are creating more lucrative and better-paying trade jobs in the infrastructure sector, which will further the exodus of remodelers, contractors and manufacturers over the next year.

Even as continued growth signals that home improvement and remodeling will continue to be strong, he acknowledges that factors including labor shortages and inflationary impacts will continue to create challenges moving forward.

Prediction 3: The “golden era of remodeling” is upon us

Taking on an interesting perspective, Zonda’s Todd Tomalak looked to the past in order to analyze the future. Tomalak presented a case study that examined the housing market and economic factors in 1920–1921 — following the Spanish Flu pandemic in 1918 — to those we’re currently experiencing following the COVID-19 pandemic. The resemblances between the two are uncanny.

Similar to what we saw in the early 1920s, we are now experiencing fears of a recession, rapid inflation, and labor and supply chain shortages, all of which are causes for concern. Yet, while these conditions point to a recession — albeit a mild one — positive sentiments around remodeling are a cause for hope in the market.

Tomalak agrees there will be a decline in remodeling over the next year or so as consumers are concerned about recessionary fallout and increased home prices, which will cause them to reevaluate their priorities as to where they want to invest their money.

Yet, as prices begin to stabilize, discontented homeowners will begin to focus more on improving their current homes as the housing market experiences record-low inventory mixed with higher prices. With all of these factors in mind, Tomalak believes the 2020s could look like the “golden era of remodeling.”

Prediction 4: Today’s challenges will become tomorrow’s trends

Sphere Trending’s Susan Yashinsky provided a change of pace as she focused more on how our industry’s current challenges will actually become exciting opportunities and solutions in the future.

Susan organized her thinking through the construct of DIYer ABCs. While she still acknowledged challenges such as affordable housing, mental and physical health, generational shifts, environmental impacts and evolving technology, she also explored how these forces could impact the way future homes will be built, how people will connect and how DIY should and will evolve.

Some of her insights included:

  • Rethinking how homes are built through the lens of affordability, flexibility, sustainability, technology, changing needs and lifestyles

  • How the desire for connection to other people paired with the continued need for privacy/sanctuary in the home will shift our approach to living spaces

  • Generational differences will drive DIY trends (Boomers focus on projects allowing them to age in place while younger generations seek ease and the joy of “enhancement.”)

Yet, her call to action was geared toward manufacturers across the DIY industry, imploring them to create a culture of accountability around meaningful and relevant innovation.

“Manufacturers need to focus on innovative, smaller-scale solutions that address current needs and consumer desires.”

Final thoughts

Unfortunately, there are indicators from industry experts that point to, at the very least, a mild recession. However, I was pleasantly surprised that these forecasts were more optimistic than I expected.

While all of these predictions may or may not play out as experts believe, I think it is crucial for companies around the home and building industry to stay up to date with the most current information they can get their hands on. This will help them make the best decisions for their businesses and think proactively about the obstacles current and future homeowners will face. Brands that better understand the current market conditions and where they are going will be better equipped to address these challenges through innovation or customer experience optimizations.

Explore more articles from Wray Ward.