Homeowners are Eager to Remodel, But Many are Putting Off Major Projects Until Anticipated Decrease in Borrowing Rates
By NKBA Editorial Staff
NKBA’s newly-released 2024 Kitchen and Bath Market Outlook Report points to long-term resilience in the K&B market, following an anticipated short-term decline in residential spending as many homeowners who are eager to remodel wait for loan rates to become more favorable. For now, they are expected to turn to more modest DIY projects and short-term fixes. High-income households, on the other hand, are more likely to move forward with major renovations by tapping into savings.
The economy and the job market continued to outperform expectations in an elevated rate environment in the second half of 2023. Demand for new homes remains strong as homeowners with existing low-rate mortgages are holding onto their homes, causing an undersupply of existing homes for sale.
Some of the significant data points and indicators emerging from the 2024 Market Outlook Report:
- Resilient Revenues. Full year revenues for residential K&B spending are expected to reach $173 billion in 2024, a modest year-over-year decline of 3 percent. While this level of spending is below the record highs reached in 2023, it still exceeds pre-pandemic levels and suggests that the K&B industry is fundamentally resilient in the face of considerable economic challenges.
- Mixed Outlook for New Construction Spending. New construction spending, which represents more than 60 percent of K&B industry revenues, is forecasted to decline by 4 percent in 2024 to $106 billion. While small builders are challenged by high interest rates on land and construction financing, large builders are utilizing rate buydowns to fuel their optimism about single-family starts and sales in 2024.
- Strong Remodeling Demand, Lagging Financial Means. Remodel spending is projected at $67 billion, a slight year-over-year decline of 2 percent. The majority of homeowners with mortgages below 5 percent view remodeling, rather than moving, as the most cost-effective approach right now. Yet while their appetite to remodel is strong, many of those households are deferring large projects or breaking them into smaller phases due to a decline in excess household savings, which have been eroded by inflation over the past 18 months; higher financing rates that make it less desirable to tap into home equity; and continued overall uncertainty about the economy.
- More DIY in 2024. DIY spend is expected to grow 2 percent this year as many of these consumers will opt to undertake simpler patch-fixes until they are ready to fund larger remodels.
- Less Hesitation Among Homeowners Who Can Tap Into Savings. High-income households appear more inclined to move forward with major kitchen and bath remodeling projects in 2024. They are willing and able to tap into savings and avoid financing tied to prevailing high interest rates.
- Indicators for Optimism. Several factors inspire considerable optimism about the strong long-term outlook for K&B remodels:
- Once mortgage rates moderate to around 5 percent, the number of existing homes for sale will return to normal levels, spurring interest from both buyers and sellers to remodel.
- Homeowners are still sitting on record levels of home equity that they can tap into once rates stabilize, as projected.
- Remodeling projects deferred in early 2024 will fuel demand in the coming years.
- The number of homes in prime remodeling years will grow by 2.2 million by 2027, reaching a total of 24 million.
- Recent homebuyers who settled for new homes they can afford will be inclined to remodel sooner, adding upgraded finishes/features unavailable to them at time of purchase.
“All signs point to an industry that is riding out an extremely challenging economic environment and poised to benefit from a more favorable climate as the year progresses,” says Bill Darcy, Global President & CEO of NKBA | KBIS. “The long-term view is extremely positive and should inspire real optimism about the potential for significant growth in the years ahead.”
“Homeowners are chomping at the bit to finally embark on their long-awaited kitchen and bath projects,” added Darcy. “As borrowing becomes less challenging, we’re confident they are going to do so enthusiastically, and in increasing numbers.”
Download and read the full 2024 Kitchen & Bath Market Outlook report here.
