The remodeling market cooled off but continued growing during the second quarter of 2023, according to the latest U.S. Remodeler Index.

A market sentiment index created by John Burns Research and Consulting and Qualified Remodeler, the U.S. Remodeler Index fell by 3.8 points to 56.8 in the quarter that ended June 30. It is the lowest quarterly since the end of 2020 when the index was launched. The U.S.R.I is a diffusion index where any reading over 50 indicates a growing market while readings below 50 indicate a retracting market.

Over the past three years, the U.S. Remodeler Index has never retracted and it has mostly run very hot. The reading for Q1 2021 reached a peak at 75.2 and has gradually stepped down from the ‘strong growth’ range. Strong growth is indicated by readings at 60 or above.

In the most recent quarter, near-term remodeling activity for the coming three months was pegged at a robust 59.8 and current remodeling activity registered a 55.6 reading for the quarter.

Eric Finnigan, vice president of research and demographics at John Burns, said remodeler sentiment in Q2 translated to a slightly lower level of expected revenue growth for 2023.

“While remodelers rate industry conditions as normal, high interest rates and surging costs are dampening remodeling activity,” said Finnigan. “Homeowners are starting smaller, less costly projects; trading down into lower-grade finishes; or simply waiting until project costs feel more normal. And though backlogs remain large by historical standards, remodelers revised down revenue expectations for the year. We’re still optimistic on long-term remodeling industry prospects. After a historic remodeling boom in 2020-2022, however, homeowners are taking a breather from making large, new investments in their home.”

For full-service remodelers, revenue growth is now projected to be up .5 percent up year-over-year, revised downward from a 3 percent growth expectation in Q1. For design-build firms revenue growth is expected to hit 3 percent for 2023, down from an expected 4 percent during Q1. And for specialty replacement and home-improvement pros, revenue growth for 2023 is now 2.8 percent, slower than the 5 percent seen by the group earlier in the year.

Four Key Takeaways from the Q1 USRI Report

I. Remodeling activity slowed in Q2, especially for big-ticket discretionary projects, like kitchen and bathroom remodels.

II. Despite clear improvement in the supply chain and product availability, project costs are stuck at very high levels.

III. No sharp pull back in remodeling activity through professional contractors should be expected. Instead, activity should moderate further.

IV. Remodelers generally expect residential remodeling revenues to grow in 2023, but at a slower pace than previously expected.

Another key market trend noted in the Q1 U.S. Remodeler Index is the strong correlation between rising interest rates (and higher borrowing costs) to client trade downs in a number of areas including project sizes, substitutions to lower-costs products and finishes and lastly delaying projects. QR

Q2 U.S. Remodeler Index Full Report

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