Businesses in the home remodeling industry are entering 2021 with cautious optimism, according to Houzz. Concern for the health of the industry during the early months of the coronavirus (COVID-19) pandemic gave way to confidence in the second half of 2020. The Q1 2021 Houzz Renovation Barometer points towards further positive sentiment for renovation activity in the first quarter of 2021, despite supply chain constraints, labor shortages, and increasing costs for materials, including lumber.

“Favorable interest rates and increased pandemic-related demand for remodeling have given architectural and design firms confidence for Q1 compared with the previous quarter,” Marine Sargysyan, Houzz senior economist, said in a prepared statement. “Yet, construction businesses have tempered their expectations slightly as they continue to face supply chain constraints, labor shortages, and increasing cost for materials, such as lumber.”

Houzz’s quarterly barometer tracks market expectations, project backlogs, and recent activity in both the construction sector and the architectural and design services sector. The Renovation Barometer is based on a quarterly online survey to businesses with online profiles on Houzz. The barometer reports on the renovation market via its three indices: the Expected Business Activity Indicator, the Recent Business Activity Indicator, and the Project Backlog Indicator.

Indicators in the construction sector, while remaining high, dipped below readings from the previous quarter in several categories, including expected business activity, and recent business activity. The sector’s Expected Business Activity Sector, related to project inquiries and new committed projects for the quarter ahead, decreased from 73 in the fourth quarter of 2020 to 70 in the first quarter of 2021. Expectations for build-only remodelers decreased eight points from the previous quarter, while expectations for design-build remodelers increased from the previous quarters.

The sector’s Recent Business Activity Indicator, related to project inquiries and new committed projects in the most recent quarter, decreased significantly to 62 from 75, driven by a large decrease in project inquiries in the most recent quarter. Build-only remodelers reported a decrease in recent business activity of 18 index points, while design-build remodelers reported an eight point decrease in recent activity.

The construction sector Project Backlog indicator increased to 7.4 weeks in the first quarter. The average backlog is two week longer than a year ago, according to Houzz. Backlogs were the longest in the East North Central census division, which includes Wisconsin, Michigan, Illinois, Indiana, and Ohio. Backlogs in the census region including Kentucky, Tennessee, Alabama, and Mississippi, were the shortest in the first quarter, according to Houzz.

For architects and designers, the Expected Business Activity Indicator and Recent Business Activity Indicators both increased in the first quarter. Backlogs for architects and designers increased by 1.2 weeks on a year-over-year basis, according to Houzz.

The Q3 2020 Houzz Renovation Barometer gathered responses from 1,588 professional Houzz users, including 229 build-only remodelers and 572 design-build remodelers. The Expected Business Activity and Recent Business Activity Indicators are computed on a seasonally adjusted index of 0 to 100, with index values over 50 indicating a greater proportion of respondents reporting quarterly increases in project inquiries and new committed projects than those reporting decreases. All indices are computed individually for the sectors as well as for the nine Census Bureau regions using industry subsector and regional weights derived from the 2016 U.S. Census County Business Patterns Survey. The Project Backlog Indicator, based on wait times on the start date for midsize projects, is reported without seasonal adjustments.