Key Takeaways:
• The building and construction segment gave the K&B industry the highest Q4 2022 KBMI score out of all segments, including the highest scores for current and future business conditions.
• Many builders reported realigning their sights on remodeling jobs due to a decrease in new construction.
• In Q4 2022, the availability and cost of skilled labor was the top concern of K&B industry professionals.
By Dianne M. Pogoda
According to the Q4 2022 NKBA/ John Burns Kitchen & Bath Market Index, construction pros provided the most optimistic outlook, rating the KBMI at 64.9 on a scale of 100. Additionally, the overall rating given by all segments including building and construction, designers, retailers and manufacturers was 61, reinforcing the positive sentiment. Industry executives polled in the survey said they expected to close the 4th quarter and full year on the plus side despite facing various challenges.
Builders also rated current business conditions highest, at 67, compared to the overall rating of 61.4. As for other segments, manufacturers came in at 58.2, retailers at 59.8, and designers at 61. The construction segment also gave future conditions the highest of 62, compared to the overall group’s rating of 56.9. K&B industry professionals projected that Q1 2023 sales would increase by 2.7 percent relative to Q4 2022, while builders specifically projected a bullish 4 percent quarter-over-quarter growth.
Top Industry Concerns and Challenges
The availability and cost of skilled labor, the top concern cited by all segments, affects construction directly. Respondents said the lingering lack of labor was negatively impacting their ability to complete existing projects, while higher labor costs were taking a bite out of their margins.
Fear of recession – which in Q3 overshadowed worries about lack and affordability of skilled labor in all segments – fell to second place in Q4, with 22 percent saying it was their biggest concern.
Builders reported new construction had been slowing significantly. This may have been due to factors such as higher mortgage interest rates, lack of available land and higher materials costs, which could have priced many potential home buyers out of the market. Still, construction firms reported 2022 YOY sales growth of 4.7 percent, not far from the 5 percent reported across all segments.
A Shift in Strategies
Many builders reported redirecting their energies to remodeling to battle the falloff in new construction. They said projects were out there, even though they were somewhat smaller in scope, and that consumers were breaking larger projects into smaller, more affordable phases. Some remodelers said they were trying to help their clients identify priorities – needs vs. wants – while others said they were remodeling smaller spaces but including a “wow” factor to make the projects special.
Some good news: fewer construction pros (71 percent) reported canceled or postponed projects in Q4 as compared to those (75 percent) who had reported cancellations or postponements in Q3. Projects exceeding $50,000 were most at risk of being canceled or postponed, followed by the least expensive jobs (up to $20,000). Backlogs in Q4, like in Q3, were running at about 3.9 months after hitting a high of 4.8 months in Q2 – showing a steady and robust backlog, which helps in offsetting slowing demand. Additionally, builders reported they expected backlogs to go up again as project leads materialized in the first quarter.
More New Leads to Start 2023
Finally, 39 percent of builders reported that they expected leads to increase in the first quarter of 2023. This was up from Q3, when builders had anticipated an increase of only 30 percent for Q4. Only 14 percent expected to see a decrease in leads – down from the 30 percent who had expected a falloff in Q3.
The KBMI research is conducted quarterly by NKBA and John Burns Real Estate Consulting to examine the overall state of the K&B industry, current conditions and future expectations, as well as challenges that executives are facing. The Q4 survey netted 474 responses from NKBA members in the four main segments of the industry.
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