Key Takeaways

  • Remodeling and New Construction in Decline. Household savings at 2.3 percent in October 2022, down from 7.5 percent in December 2021, negatively affecting the K & B industry. 
  • Homeowners Continuing to Fund K&B Remodeling Projects. Among homeowners moving forward with their projects, more than two-thirds will rely on personal savings to complete major full-service K&B remodels.
  • Rising rates pricing out home buyers. Current mortgage rate is at 6.3 percent, decreasing the households that can qualify for a mortgage.
  • SFR Help Carry the K&B Industry. Single-family rental market crucial to remodeling spending in 2023, as low housing inventory has resulted in more demand for SFR properties. 

Though the Fed is trying to tame inflation through rate hikes and create a ‘soft landing’ for a possible recession, it has significantly impacted consumer savings and spending. Household savings, which fueled the remodeling boom in recent years, were at 2.3 percent in October 2022, down from 7.5 percent in December 2021 – and they continue to decline. 

According to the NKBA’s recently released Kitchen & Bath Market Outlook Report, remodeling, not new construction, will sustain the K & B industry in 2023. Even in the face of the economic downturn – increased prices due to inflation, supply chain issues, and limited availability in materials –  many homeowners are moving forward with remodeling plans. However, it will not be at the same levels in 2021 and 2022, as medium-scale remodels are forecast to decline 18 percent in 2023. 

To fund their remodeling projects, more than two-thirds of homeowners will rely on personal savings. Only 12 percent of bath remodels and 22 percent of kitchen remodels will depend on financing tied to prevailing interest rates. Although demand among homeowners planning to complete a major full-service K&B remodel will also be down (14 percent), these more affluent consumers are likely to move forward with their projects and pay with cash.

Why will renovations fare better?

Poor economic conditions are partially to blame for driving consumers towards renovations and improving their current homes. Rapidly rising rates are pricing out prospective home buyers, with 90 percent of mortgages locked in at rates below 5 percent. With the current mortgage rate at 6.3 percent, households that can qualify for a mortgage have sharply decreased over the past year, though mortgage rates are expected to decrease to an average of 5.7 in 2023. Inflation and supply chain issues have also affected the cost of new materials and labor for new construction, keeping homeowners in place. 

Homeowners’ preference for remodeling also coincides with the number of aging homes that were built during the mid-2000s boom, as they are now entering their prime remodeling years (20-29 years old). Two strong tailwinds driving remodeling in the next few years are that “middle aged homes” have 15-24% more K&B remodels than the US norm and an additional 2.9 million homes will be entering their prime remodeling years by 2027. 

The single-family rental (SFR) market will also remain crucial to K&B remodeling spending in 2023, as low housing inventory has resulted in a surge in demand for SFR properties. In fact,13 percent of all 2023 kitchen and bath remodeling ($8.5 Billion) spending will come from renovations to SFR properties. 

To access the full 2023 Kitchen & Bath Market Outlook download the report here.