Will High Inflation and Recession Fears Lead to a Drop in Remodeling?

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During the height of COVID-19, it seemed like everyone knew someone who had bought a home and then remodeled the kitchen, created a home office or gym, or turned the scraggly backyard into an outdoor oasis.

But as the pandemic enters its fourth year, most folks are no longer trapped in their homes obsessing over every flaw. The homebuying frenzy that typically spurs remodeling work has died down. And many people are more concerned with high inflation and the looming threat of a recession than their dream en suite bathroom.

Where does that leave the remodeling industry? In fairly good shape, say most experts. Homeowners are expected to spend even more on remodeling, repairs, and maintenance in 2023 than they did in 2022.

“We are expecting the market to continue to grow, just not nearly as fast as it was the past couple of years,” says Abbe Will, a senior research associate at the Harvard Joint Center for Housing Studies. “Even if we are in a recession in 2023, I wouldn’t necessarily expect the renovation market to decline.”

Homeowners are projected to spend $448 billion nationally in the first quarter of 2023, according to the center. That’s about a 34.1% increase from the $334 billion homeowners spent in the first quarter of 2020, according to data from the center’s Leading Indicator of Remodeling Activity, or LIRA.

The nation’s housing stock is aging, and older homes are more in need of repairs, maintenance, and updates. And despite the turmoil in the economy and financial markets, homeowners have high levels of equity they can tap to fund the work.

“These things will continue to prop the remodeling market up,” says Paul Emrath, vice president of survey and housing policy research at the National Association of Home Builders. “People have savings and equity in their homes … so they’re not as dependent on loans.”

Homeowners aren’t slowing down their remodeling work

Even with the number of home sales dropping dramatically and the increasingly worrisome state of the economy, just 1% canceled their remodeling plans in 2022, according to a survey of nearly 4,000 Houzz users in mid-October.

“We are expecting nearly half of homeowners to renovate in 2023,” says Houzz economist Marine Sarsyan. “This might be less than the actual share who renovated in 2022, though [it’s] still a significant activity for the industry.”

Many homeowners are holding off on their plans to trade up or down into new homes in the face of high mortgage interest rates and the risk of a recession. So they might be more likely to pivot away from nonessential remodels, like installing new kitchen cabinetry or adding a sunroom, and in favor of replacing a roof or boiler system if they plan on being in the property for longer.

“Replacement projects, like roofing and systems and equipment, the parts of the home that can wear out, need to happen sooner or later,” says Will. “We do have an aging housing stock.”

The top system upgrades were electrical, plumbing, heating, and security, according to a Houzz survey.

Meanwhile, the most popular room renovations were bathrooms and kitchens, according to Houzz. Homeowners updating the exterior of their residence were most likely to install new windows, skylights, and doors; paint the outside of their abodes; and improve their porches, balconies, and decks.

The remodeling industry still faces some challenges

While homeowners will continue to spend more on remodeling in 2023 than they did in 2022, the rate of growth will slow, especially as the number of home sales drops.

Emrath anticipates some homeowners will scale back the extent or the cost of their remodels, especially as higher interest rates make loans more expensive.

Remodelers were still upbeat in the third quarter of this year, although their optimism has waned over the past year, according to a National Association of Home Builders remodeling index. That could be at least partly due to the impact of fewer home sales projected in the year ahead.

“A lot of remodeling does tend to happen around the sale of a home,” says Will. Sellers spend money fixing their residences and getting them ready to put on the market. Then “recent buyers tend to spend quite a lot more in the first few years after buying a home.”

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