Key Takeaways:

• Mid-level remodels will outperform during the downturn.
• Only 3 percent of postponed remodels will be canceled outright should homeowner buying power decline by 10 percent.
• The number of homes in the “sweet spot” for remodeling is expected to rise significantly over the next 4-5 years.
• Those who were forced to “settle” with their recent home purchase due to supply shortages are strong candidates for upgrades.

By Robert Isler

Todd Tomalak, Principal at Zonda Building Products, says that we are in the midst of a ten year period that he believes will be looked back on as the “golden era of remodeling.” Tomalak was among the speakers at the NKBA Futurist Summit in August and during his session, he made the case that this decade will prove to be a positive period for kitchen and bath remodeling. 

In the session, Tomalak said the rapid drop in home sales will only get worse but he doesn’t see this strongly correlating to a drop in home improvement. He cited 2018 when  home sales declined but remodeling did well. His concern centers around  income and inflation. If inflation significantly outpaces income, buying power will suffer and impact remodels, at least within an 18 month period. That’s partially the reason he believes there will be a cyclical slowdown for remodeling in 2023 and 2024.

“In a Zonda survey that asked if they would cancel a remodel project if their buying power declined, 63 percent said they would continue as planned or adjust their budget downward.”

Despite the anticipated short term pain, Tomalak says there are a number of factors that bode well for the continued growth in the kitchen and bath industry. One is pent-up demand. Many homeowners had planned a remodel within the past 18 months, but held back due to lack of availability of contractors, supply chain frustration or cost increases. Zonda conducted a survey to determine what these same homeowners would do if their buying power declined by 10 percent during the current economic slowdown:  Only 3 percent said they would pull the plug on their remodeling project, while 63 percent would either continue as planned or adjust their budget downward. The remaining 34 percent would continue to postpone for up to 24 months. In short, the projects will move forward, with only the timing or spend levels changing.  

Tomalak also noted that those with household incomes below $60,000 represent 40 percent of  homeowners but drive less than a quarter of remodel spending. Meanwhile, those with incomes over $100,000, represent 37 percent of homeowners but account for nearly 60 percent of home improvement spending. For kitchen and bath remodels, the comparison is even more stark, with nearly two-thirds of the remodeling dollars spent coming from high-income homeowners. Tomalak anticipates that those in the top tier will downgrade the scope of their remodels, leaving mid-range projects the strongest.  

Tomalak compared today’s situation to that of the 1970’s and early 1980’s when years of double-digit home price inflation gave way to huge mortgage rate increases and a recession, but home prices held up. During these decades, the impact on the remodel industry was far less severe than for new construction.

“The “sweet spot” for indoor remodeling centers around 20-39-year-old homes, which are expected to increase in number through 2026.”

Another factor expected to provide a strong tailwind for kitchen and bath upgrades is aging housing stock, with the number of “older” single family homes forecasted to grow by 20 percent through 2026. The “sweet spot” for indoor remodeling centers around 20-39-year-old homes, said Tomalak, since these homeowners are more likely to upgrade. The demographic situation is just as promising within the next several years, with the influx of millennials entering their home-buying years.