Remodelers, design-build firms, and architects maintain generally positive outlooks for 2020, according to the 2020 Houzz State of the Industry report. More than half of residential renovation and design companies with Houzz profiles predicted 2020 would be "Good" or "Very Good," reflecting a slight increase from industry expectations for 2019.
Remodelers and design-build companies had the most optimistic outlooks for 2020, with nearly eight in ten firms reporting "Good" or "Very Good" business outlooks. Architects were the most conservative, with only two-thirds of respondents indicating business outlooks for 2020 were "Good" or "Very Good."
While most design and construction-related groups reported positive outlooks for the coming year, industry groups in general were more conservative in their annual revenue growth predictions for 2020. Five of the seven industry groups identified by Houzz lowered 2020 growth expectations compared to 2019 growth expectations. Surveyed remodelers project 7.6% annual revenue growth, down around one percentage point from what the group projected for revenue growth in 2019. Design-build firms were one of two industry groups to increase annual revenue growth projections for 2020 relative to 2019, projecting nearly 9% annual growth.
“The findings from this year’s Houzz State of the Industry show continued momentum for the industry in its tenth year of expansion,” Nino Sitchinava, Houzz principal economist, said in a prepared statement. “While revenue growth slowed notably in 2019 and businesses expect continued growth deceleration into 2020, the positive outlook is prevalent across all industry groups and even improved when it comes to the health of the national economy."
Economic Outlook and Labor
Less than a quarter of surveyed firms have a positive outlook for the national economy, according to Houzz. One in four remodelers surveyed expect the national economy to change for the worse in 2020. Despite less optimistic economic outlooks, expectations of an economic decline were less prevalent among design and construction-related groups compared to the 2019 State of the Industry report. Additionally, around two-thirds of remodelers and design-build firms are optimistic that the demand for their services will increase in 2020.
Nearly half of surveyed firms expect labor availability to continue to worsen in 2020 and more than half of design and construction-related groups expect the costs of labor to worsen in the year ahead. Despite the expected headwinds, more than a third of remodelers and design-build firms expect to hire in 2020.
Revenue Deceleration
Reported revenue continued to increase in 2019, but Houzz reports that a majority of industry groups experienced notable deceleration in average revenue growth compared to 2018. Remodelers experienced an average revenue growth of 5.3% 2019, a full two percentage points lower than reported average revenue growth in 2018. Design-build firms reported an average revenue growth of 5.7%, down 2.5% from what firms reported in 2018.
Rising Costs and Business Challenges
After design and construction-related groups experienced widespread increases to costs of doing business, products and materials are cited as the most significant drivers of cost. Remodelers and design-build firms both reported product and material costs, subcontractor costs, and employee wages as the three top drivers of cost in 2019. Remodelers reported the increased cost of doing business, a shortage of subcontractors, and difficulty hiring as the top business challenges in 2019, while design-build firms indicator the shortage of subcontractors, the increased cost of business, and the difficulty managing consumer concerns about costs were top challenges.
Rising costs are attributed to a negative impact of tariffs on business in 2019. Businesses reported a wide range of products and materials were impacted by tariffs, including metal, steel, wood, cabinets, tile, and quartz. More than half of surveyed remodelers and design-build firms expect product and material costs to worsen in 2020.
"A major headwind in 2019 was rising costs of products and materials, linked by many businesses to increased tariff actions levied against popular construction products and materials," Sitchinava said. "Elevated costs of products and labor continue to be the top challenges facing businesses going into 2020.”
The State of the Industry report from Houzz compiled answers from 3,094 professionals with Houzz profiles that offer services related to residential renovation and design. The report grouped respondents into seven categories, including architects, interior designers, general contractors and remodelers, design-build firms, building and renovation specialty firms, landscape and outdoor specialty firms, and decorating specialty firms. The survey included responses from 599 remodelers and 601 design-build firms and was conducted between December 2019 and January 2020.
