How will kitchen and bath spending play out this year? An NKBA panel weighs in

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How will the home improvement category perform this year? Depends on who you ask.

Bill Darcy, global president and CEO of NKBA | KBIS, spoke with a panel of experts at the National Kitchen and Bath Association’s KBIS show last week about the economy and what’s ahead.  

“Housing is the heartbeat of the U.S. economy” – and the largest household expenditure, said Orphe Divounguy of Zillow. “When supply doesn’t keep up with demand, you get inflation,” he said. “Unfortunately, we don’t have enough housing to go around for everyone in this country.”

Divounguy said he is always asked when are interest rates going to fall. While it’s difficult to forecast interest rates, “housing is the key to getting inflation under control,” he said. “How many homes are builders going to build? We need to see a substantial increase of housing supply … Buyers flock to new construction.”

Divounguy added, “Don’t blame the Fed [about interest rates]. We’re spending a lot; the economy is strong – the problem is our supply side is hampered.”

Abbe Will of Harvard University’s Joint Center for Housing said the recent LIRA (Harvard’s Leading Indicator of Remodeling Activity short-term survey) saw a decline of about 6.2% to 6.5% in total U.S. home improvement spending, which includes categories such as windows, roofing and siding as well as kitchen and bath. But this is after “truly phenomenal years of spending,” she said, years that saw 10% to 20% year-over-year growth. “Now we’re coming out on the other side.”

A recent survey by John Burns Research & Consulting of 500 builders, remodelers, designers and manufacturers saw an expected revenue growth gain of about 7%, said Chris Beard of John Burns Research & Consulting. Once interest rates are stabilized later this year and homeowners feel more comfortable about tapping into home equity loans, things will get better, he said.

Todd Tomalak of housing research firm Zonda was more bullish in the long run, but for right now, “you have to take the market apart by income group.” The top end of the market is really positive, he said, and is underinvested because they weren’t able to get the products they wanted.

The one group he worries about is the middleincome group, with a household income of $60-100,000; about 15% of this group overextended how much they spent on home improvement during the pandemic and now are facing credit issues. In addition, Zonda expects overall home improvement spending to climb 2% this year; however, the year is off to a soft start, with spending for home improvement at -5% for Q1, while projects less than $25,000 are at -11%, he said.

Other highlights:

–“You don’t see a lot of price cuts from builders,” said Divounguy. Instead, “you see incentives.” In fact, buying a new home has become more affordable because they carry less maintenance cost. Zillow has found that 42% of new construction buyers considered a new construction home only, up from 31% in 2021 and 36% in 2022. There’s a movement toward new construction because it’s considered more affordable, he said.

–“There’s a significant amount of dissatisfaction of homeowners in their current homes,” said Tomalak.  Twenty-five years ago, people moved four times as often as they remodeled. Now because they can’t find the home they want, they’re staying put and upgrading the home instead. Anyone who’s tried to buy a home in the last few years is more inclined to settle rather than look for their dream home because of the competition, he said.

–The data says people should renovate their bathrooms every 40-50 years, said Tomalak, a period that seemed too long to him. But given that, one could assume the homeowner renovates one bathroom every 20 years and leaves the others alone. But homes are larger today and have 17% more bathrooms, which spells more opportunity in luxury homes, he said.

–Home sizes will continue to come down, but homeowners don’t want to downsize kitchens, primary bedrooms and primary bathrooms, said Beard. In fact, “kitchens are still getting bigger.” Secondary bedrooms and dining rooms are the rooms that people are eliminating from their floor plans.

–Joint Center for Housing of Harvard University’s American Consumer Survey estimated the total number of skilled trade workers, including carpenters, electricians and painters, fell from 7 million in 2007 to 5.8 million during this last pandemic. It’s an ongoing problem for the industry, Will said. “We’re not building up that pipeline.”

–Darcy said the forecasted K&B spend for 2024 is $173 billion, a drop from last year, but still better than pre-pandemic.

–Beard said John Burns is monitoring shipping hot spots. The two wars are not fazing the industry, he said. But it is monitoring the situation in the Red Sea, which is rerouting shipping that normally goes through the Suez Canal and accounts for 12% of all global shipping. Water shortages in the Panama Canal, which sees about 5% of global shipping, is forcing companies to reroute ships around the tip of South America instead. These rerouting issues add time and cost on shipments from Asia.

See also:

What are potential homebuyers looking for in a new home? Zillow shares its search results

Is the housing market finally readjusting? Experts see normalcy ahead


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