Households are hitting pause on their tub-to-shower conversion plans and buying new shower curtains instead.
After a pandemic-era renovation craze, the nation’s two largest home improvement retailers say customers are spending less on big projects in favor of cheaper do-it-yourself fixes.
Lowe’s said this week that it’s seeing shoppers cut back on kitchen and bathroom purchases and becoming more cautious about buying big-ticket appliances.
“Those who did engage in home improvement activities took on smaller, nondiscretionary projects with a heightened focus on value,” Lowe’s CEO Marvin Ellison told investors when the company reported its fourth-quarter earnings Tuesday. Sales dropped 6.2% compared to a year ago, which the retailer blamed on “persistent inflation and a stagnant housing market.”
A week earlier, Home Depot, the largest U.S. home improvement chain, reported its own sales dip, declining 3.5% in the fourth quarter from the year before.
“Major home renovation projects are on hold as consumers watch their finances, but they still have an appetite for lower-cost improvements they can do themselves,” said Joe Derochowski, home industry adviser at the market data company Circana.
Rising prices appear to be the main reason for consumers’ home renovation pullback. Circana data shows retail sales revenue for kitchen and bath projects declined just 1% from 2020 to 2023 — but unit sales were down 25% over that period, suggesting customers’ budgets are stretching across fewer items thanks to inflation.
The pace of consumer price increases has slowed dramatically, with the annual rate landing just above 3% last month after peaking over 9% in mid-2022. But after three straight months of improvement, consumer confidence ticked down in February, with a slight dip in household expectations for making large purchases in the next six months.
Home improvement spending has been cooling for months, Lowe’s and Home Depot have said, after a frenzy to upgrade both newly purchased homes and those where people suddenly found themselves spending more time together during Covid lockdowns.
But while the action has died down, households appear to be deferring, not ditching, their more ambitious renovation projects.
They didn’t imagine that a bathroom might cost 20, 30 grand to remodel.
Contractor Emmanuel Forge
Home Depot Chief Financial Officer Richard McPhail told analysts last week that business is dragging “at a lesser degree than we faced in 2023,” adding that “our market is on its way back to normal demand conditions.”
Derochowski expects many consumers to revisit their pricier plans later in 2024. “There is pent-up demand that will bring opportunity for spending on larger home improvement projects over the coming year as the economy improves,” he said.
Emmanuel Forge, a traveling contractor who posts home-renovation advice on TikTok and Instagram under his Remodel School brand, said he’s had no trouble finding work lately. But he said many homeowners underestimate how much projects cost, and some abandon their aspirations after doing the math.
“They didn’t imagine that a bathroom might cost 20, 30 grand to remodel,” Forge said. “They thought it might be five grand and a weekend or two.”
Contractors’ and home improvement retailers’ businesses are closely tied to the housing market.
As 30-year fixed mortgage rates dipped below 3% in 2020, existing home sales soared to an adjusted annual peak rate of 6.6 million, according to the National Association of Realtors. Americans poured money into fixing up their properties at the same time. Comparable sales skyrocketed 29% at Lowe’s and 25% at Home Depot in the fourth quarter of 2020.
But as the Federal Reserve lifted interest rates to more-than-20-year highs to quell inflation, mortgage rates rose, too. By the end of last year, 30-year rates flirted with 8%, cooling existing home sales to an annual rate of around 4 million, as more would-be buyers held back. Fewer home sales means fewer homeowners looking to renovate.
Materials costs have risen in recent years, driven up by the supply chain snags of 2021 and 2022, and labor costs have soared as well. Average hourly earnings for specialty trade contractors jumped 16% from December 2020 to December 2023, keeping pace with the increases all workers saw during that period, according to the Bureau of Labor Statistics.
The higher costs are one reason Forge said he could see homeowners opting not only for smaller projects but ones they can tackle on their own.
“Maybe instead of them buying $3,000 of cabinets to install themselves, they’re just going to paint them with $300 of paint,” he said.