Expectations vary among remodeling and design professionals

Expectations vary among remodeling and design professionals

Houzz Inc. released Houzz US Renovation Barometer Q4 2023. The barometer tracks residential renovation market expectations, project backlog and recent activity among companies in the US construction sector and architectural and design services sector. Published from September 30 through October 12, 2023, the Barometer provides timely insights into the impact of recent economic fluctuations on the home improvement market. Results vary between the construction and architectural and design services sectors, with the latter reporting increased business activity last quarter and optimism through the end of the year. By contrast, more construction professionals reported a decline in business activity in the third quarter than an improvement, leading to a somewhat unfavorable outlook for the fourth quarter.

“After improving business activity in the third quarter, architecture and design professionals are relatively optimistic about business until the end of the year,” said Marin Sargsyan, an economist on the Houzz team. “However, as business activity in the construction sector continues to slow, construction professionals in particular have a more negative view on the quarter. Despite this outlook, activity continues and backlogs remain at least one week longer than they were in Last year for the construction sector.

Backlog in the construction sector was 11.4 weeks, up 0.9 weeks compared to the same period last year (10.5 weeks). Wait times as high as 15.1 weeks have been reported by construction professionals in the West North Central region. By contrast, companies in the architectural and design services sector recorded much shorter waiting times (6.1 weeks), down on last year (7.6 weeks).

Q4 2023 Construction Sector Benchmark

The overall outlook among companies for the construction sector is unfavorable; However, expectations vary between design-build firms and remodeling-only firms. Design and construction companies appear more optimistic, with the business index expected to reach 53 points, meaning that slightly more companies expect growth rather than decline. Remodelers only expect slower activity than the previous quarter (41 in Q4 compared to 54 in Q3).

  • The Expected Business Activity Index related to project inquiries and committed new projects fell to 47 for the fourth quarter (compared to 54 in the third quarter), indicating that more companies expect decreases on a quarterly basis than increases on a quarterly basis. Expectations for project inquiries fell to 46, compared to 54 in the third quarter, and new projects committed reached 47, down 6 points compared to expectations for the third quarter (53).

  • The project backlog is 11.4 weeks at the start of the fourth quarter, which is 0.9 weeks longer than a year ago and 5.1 weeks longer than it was five years ago in the fourth quarter of 2018.

  • The latest business activity index for project inquiries and committed new projects reached 44 points in the third quarter, up one point from the second quarter. This is due to a 4-point increase in project inquiries in Q3, compared to the previous quarter and a 3-point decrease in new projects committed to 44 in Q3.

Architectural and design services sector benchmark for the fourth quarter of 2023

Positive sentiment among the architectural and design services sector was much stronger in the fourth quarter (at 61) than in the previous quarter (52). More companies expect business activity to improve compared to those that expect a slowdown. Both interior designers and architects reported improved business activity in the third quarter, although interior designers (64) are somewhat more optimistic than architects (59) that business growth will continue.

  • The Expected Business Activity Index related to project inquiries and committed new projects rose to 61 for the fourth quarter (up 9 points from the third quarter). The increase in the overall index was mainly due to a 9-point increase in forecasts for both project inquiries and new projects committed to 61, each in the fourth quarter.

  • The project backlog is 6.1 weeks at the beginning of the fourth quarter. Backlog is down a week and a half compared to last year (7.6 weeks), but is a week longer than it was five years ago in Q4 2018 (5.1 weeks).

  • The latest business activity index relating to business inquiries and new projects rose significantly to 52 in the third quarter (compared to 43 in the second quarter), with interior designers at 55 versus architects at 51, indicating that the number of businesses that saw improvements in activity trading is greater than those who reported deceleration for both groups. After a continuous decline over eight consecutive quarters, the general index rose for the second consecutive quarter to 52 in the third quarter. Inquiries for recent projects rose significantly to 50 and new committed projects increased to 55 in Q3 (up 10 and 9 points, respectively, compared to Q2).

Regional accumulations

For the construction sector, the West and North Central division (including Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota) has the longest backlog (15.1 weeks) driven by wait times reported by builders only and construction design. in the region (18.3 and 12 weeks, respectively). Businesses in the East and South Central division (including Alabama, Kentucky, Mississippi, and Tennessee) reported a 5-week backlog before they could start a new project, the shortest wait time reported by construction companies among the nine census divisions. Compared to the same quarter last year, construction backlogs are longer across five of the nine Census divisions (in all East North Central, East South Central, Mid-Atlantic, and West South Central divisions).

Backlog also varies across all regional divisions between companies in the architectural and design services sector. Companies in the Mid-Atlantic Division (New York, New Jersey, Pennsylvania, Delaware, Virginia, and Maryland, plus the District of Columbia) reported a backlog of 8.3 weeks, while the West and South Central Division (including Arkansas, Louisiana, Oklahoma, and Texas) showed a much shorter backlog at 4.4 weeks. . The backlog reported by architects in the Mid-Atlantic division (10.2 weeks) is the driving force for the long wait times, while the wait to start a new project with an interior designer in that region is just 5.1 weeks. Compared to the same quarter last year, the architectural and design services sector’s backlog is longer across only two of the nine Census divisions (Mid-Atlantic and South Atlantic divisions).

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