While remodeling activity may slow during a potential recessionary period, “fundamental tailwinds” present in the market suggest that the decade of 2020-2030 may be considered the “golden era of remodeling,” Todd Tomlak, principal of building products at Zonda, said on a recent webinar. While low-cost, maintenance and repair jobs and high-cost, gut rehab jobs may experience a slowdown over the next 18 months, Tomalak said mid-priced projects—in the $7,000-$35,000 range—will continue to experience a high volume of projects.
“We’re in a period (2020-2030, that we just very well might look back at and identify as a special time for remodeling,” Tomalak said during the “Remodeling, Inflation, and Tightening Cycles: Will History Repeat?” webinar. “[There may be] a recession stuck in the middle with a cyclical slowdown, but we expect growth to resume when prices stabilize. We think the sweet spot is in those mid-range remodels.”
Despite the positive long-term outlook, Tomalak forecast that price increases will exceed the nominal dollar growth for both maintenance and repair spending and major projects in both 2022 and 2023. Real dollar volume is projected to be marginally positive for mid-priced remodels and updates in 2022 and marginally negative in 2023.
While several factors are risks to the remodeling market, including real income declines, a “credit squeeze,” and transaction volume declines, Tomalak said the age of the U.S. housing stock is a positive factor for future remodeling spending. While aging homes—typically homes over 50 years old—tend to drive remodeling spending on gut rehab projects and structural changes, the trend is “very different for other product categories,” according to Tomalak. For example, outdoor projects—including patio installations, outdoor kitchen projects, and decking projects—are most common in homes built between three and five years ago. Exterior projects, flooring projects, kitchen and bath projects, and systems and efficiency projects tend to be most common in homes between 20 and 50 years old.
“We tend to focus on the age of the overall housing stock, however there’s an interesting number to keep track of: the number of homes between 20 and 50 years old. It’s a prime time for discretionary projects,” Tomalak said. “What we have is a tailwind factor that we didn’t have before, the raw count of homes that are in the 20- to 50-year-old window that will have to be updated. None of this spending happened during COVID because a lot of the spending was focused on outside the home, so this is still in the pipeline.”
Tomalak said another positive factor for the potential for future remodeling projects is the number of new homeowners who were forced to “settle” on homes purchased during the height of the pandemic. Difficulties finding available listings coupled with bidding wars and price appreciation meant many buyers were either unable to afford or to find a home with everything they were looking for, Tomalak said. According to Tomalak, new homeowners happy with the homes they purchased during the pandemic are most likely to pursue outdoor improvement projects such as decks, patios, or pools, while new homeowners who “settled” on home purchases are likely to pursue interior update projects, including mid-range basement updates, cladding refreshes, kitchen and bath remodels.
“You don’t have to move the structure of the home, but there is a possibility for a refresh. We think this is going to play out in a really important way as we begin to see the market settle in the next 12-18 months,” Tomalak said. “You basically have this cohort of households that are in a home, but the quality of the match compared to prior decades is likely poorer because they had to buy whatever was available.”
Tomalak said the trend of real income going negative is likely to impact households who cumulatively earn less than $60,000. The cohort, already experiencing price appreciation for non-discretionary items such as food and energy due to the pandemic, are unlikely to have as much money for home improvement projects. As a result, several remodeling project categories driven by households with higher incomes, including outdoor projects, are likely to be more resilient. Tomalak said no category is likely immune to downward cycles as the market slows, but some outdoor projects and discretionary projects, such as roofing and HVAC replacements, are likely to be more resilient.