Key Takeaways:
- Full year K&B revenues are expected to show an increase of 16 percent on top of last year’s 19 percent gains;
- High-end remodel spends have been revised upward since the initial report;
- Record levels of new construction and homeowner equity are key contributors to industry strength.
By Robert Isler
The world has changed since the NKBA released its initial 2022 Kitchen & Bath Market Outlook study back in January. Along with persistent inflation and the Fed’s decision to implement a series of interest rate hikes, mortgage rates are nearly double what they were at the close of 2021. Clearly, our industry is not immune to these economic jolts, but remains resilient for now.
The January 2022 Market Outlook called for full year industry revenues of $199 billion. Although scaled back to $189 billion in the current report, it still represents an impressive year-over-year increase of 16 percent on the heels of last year’s 19 percent gain. New construction is expected to be particularly strong, with growth of 21 percent, unchanged from the January report. It is driven by record levels of homes in various stages of construction. In fact, only 5 percent of the growth is anticipated to come from new home starts, as builders question consumer affordability in today’s high price/high rate environment. The remainder of the growth will be due to backlog moving through the system and to price inflation. Meanwhile, the remodel portion is expected to grow by 9 percent, 3 percent due to volume and mix changes, the remainder the result of inflation. The expectation is that professional spending will easily outpace DIY, with the forecast calling for a 17 percent gain over last year for Pro, 10 percent for DIY. This too is due to the heavy backlog in new construction but also to the resumption of larger kitchen and bath remodels that had been deferred.
Despite increasingly concerning economic conditions, industry revenues for 2022 are expected to grow by a healthy 16 percent.
The previous data aligns with the revised forecasts for high, medium and low project spends. Although mid-range will still experience the greatest growth, 20 percent above last year, the forecast has been cut from a projected 26 percent gain in the initial report. Expected growth for low-end activity has practically been halved, from 21 percent to 11 percent. At least one contributing factor has been the sharp rise in inflation across a spectrum of goods and services that have caused some to conserve cash and pause modest projects that aren’t a necessity. Bucking the trend have been high-end projects. Initially forecast to grow by 10.5 percent, it is now expected to climb by 15 percent. Rapid home appreciation leading to record levels of homeowner equity has enticed some to initiate a substantial remodel, particularly since nearly 3 in 4 homeowners have mortgages locked in below 4 percent and aren’t about to opt for a new home at today’s rates.
As the year moves forward, all signals point to the kitchen and bath industry closing out the year in a strong position, supported by record levels of new construction and homeowner equity. A followup blog will delve into additional drivers that bode well for the near-term. However, as we move into 2023 and conditions for a recession loom large, clearly we won’t remain unscathed. That possibility will be covered as well, as we explore kitchen and bath spending during previous recessions and what it may mean for us going forward.