NKBA | KBIS recently released the semi-annual update to its 2024 Market Outlook Research. While overall figures are still projected to dip slightly from 2023, the report revealed improvement and positive trends going forward.
Similarly, the NKBA/John Burns Kitchen & Bath Market Index (KBMI) reported a second-quarter rating of 54 out of 100. Despite slipping from 56 in the prior quarter, the index is evidence that the industry is still poised for expansion, based on current activity, sentiments about the industry’s health and near-term expectations.
Admittedly, the industry experienced a choppy second quarter, owing to ongoing uncertainty about economic conditions that’s making most consumers extremely cautious about big purchases, including major kitchen and bath renovations. Some major projects are being deferred until borrowing rates are more favorable, general economic conditions improve and/or until after the presidential election in November.
According to the Market Outlook Update, residential K&B spending is expected to slip 2% to $175.4 billion this year, indicating that the sector remains healthy, overall, based on historical standards, and should finish the year above pre-pandemic highs.
This is an improvement from the initial 2024 market outlook, released last January, which projected a 3% drop in full-year revenues to $173 billion. It also reveals a continuing positive direction. The initial 2023 Market Outlook projected a 14% decline from 2022, while the July 2023 update reduced the drop to 5%. So, the long-term outlook appears to be strengthening with each half.
“This Market Outlook Update reflects the impact of an economy that continues to temper consumer behavior,” said Bill Darcy, NKBA | KBIS global president & CEO. “However, with the promise of reduced interest rates on the horizon, there is a strong basis for optimism that more homeowners will finally begin to commit to the K&B projects they have been eagerly waiting to pursue.”
Shifting Housing Market Dynamics
More than 1.7 million homes in the U.S. will enter their prime remodeling years – 20 to 49 years old – over the next four years. Designer: Henrietta Heisler, Henrietta Heisler Interiors; photo by Justin Tearney, Justin Tearney Photography
New building has slowed overall, with a 6% decline in new housing starts this year. That translates to a 2% dip in kitchen and bath spending in new builds to $108 billion for 2024. This is partly owing to a shift toward smaller and entry-level homes in new construction.
There’s still a housing shortage in the U.S. and a low inventory of existing homes for sale. Owners of existing homes with low mortgages are not so willing to jump into new homes with higher rates, so there’s no incentive to list their homes. Affordability has become an issue for many potential buyers. But people still need housing, as new households are being formed and immigration contributes to population growth. Since interest rates are still hovering between 6.5% and 7% for a 30-year fixed mortgage, and home prices are maintaining record highs, many buyers are opting for smaller, less-expensive starter houses.
Still, builders are forecasting 10% growth in sales of new homes this year, up from 4% in 2023. Large construction companies are frequently offering lower interest rates or rate buydowns, complimentary closings and other incentives to attract buyers and make homes more affordable.
Consumer Sentiments Waver
Consumers are understandably cautious about significant expenditures, owing to such factors as lingering inflation, high interest rates, an uptick in unemployment, the Federal Reserve’s potential interest rate cuts and the next administration’s impact on monetary policy. More than a quarter of consumers said they are delaying any major purchases until after November, specifically because of the election.
With many homeowners deferring big renovation projects in favor of smaller updates, the DIY segment is expected to inch up by 2%, while homeowners relying on professionals for major remodeling should fall by 3%. The KBMI noted that most industry growth is happening at the extremes – low-end repairs or minor updates and large, high-end projects – as many homeowners stay on the sidelines for now.
The majority of consumers and general contractors, however, have adopted a cost-conscious mindset, the KBMI revealed. Consumers are choosing less costly cabinets, choosing semi-custom designs and downgrading materials and finishes.
K&B firms cited consumer uncertainty (44%) as the most significant barrier to realizing stronger growth, followed by the skilled labor shortage (32%) and higher material costs (26%). Weak existing home sales (22%) and high financing costs for renovations (22%) were also important factors.
“Consumer confidence is lagging behind evidence that the U.S. economy remains resilient, overall,” observed Darcy. “High consumer prices and elevated borrowing rates are preventing the majority of homeowners who have plans or aspirations to undertake K&B renovations from moving forward right now. In the meantime, K&B growth will largely be powered by high-end renovations at one extreme and DIY projects at the other.”
The Consumer Confidence Index, published by The Conference Board, concurred.
“Confidence increased in July but not enough to break free of the narrow range that has prevailed over the past two years,” said Dana M. Peterson, chief economist at The Conference Board. “Even though consumers remain relatively positive about the labor market, they still appear to be concerned about elevated prices and interest rates and uncertainty about the future; things that may not improve until next year. Compared to [June], consumers were somewhat less pessimistic about the future. Expectations for future income improved slightly, but consumers remained generally negative about business and employment conditions ahead.”
A Strong, Long-term Outlook
Project inquiries and leads for high-end projects are improving, according to the NKBA 2024 Market Outlook Update. Designer: Mary Maney, Crystal Kitchen & Bath; photo by Rob Grosse, Spacecrafting LLC
Overall, there is good reason for optimism about the long-term outlook for the K&B market as economic conditions become more favorable. More than 1.7 million homes in the U.S. will enter their prime remodeling years – 20 to 49 years old – over the next four years.
Recent homebuyers – who settled for entry-level purchases and quick move-ins, owing to affordability or inventory issues – are likely to upgrade those homes sooner rather than later. And remodeling projects that are now being deferred will only add to demand in the coming months and years.
Meanwhile, homeowners are sitting on record levels of home equity, which they’ll be able to utilize once borrowing rates become more favorable. Additionally, 68% of homeowners currently believe it’s a good time to stay in place and remodel rather than move.
The report also spotlighted two key indicators pointing to consumers who are eager to get started: K&B project inquiries improved compared to prior quarters, as have leads for high-end projects. All this adds up to a hopeful outlook heading into 2025, with industry pros expecting improvements to continue at a steadier pace.
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