Industry Research
Remodeling and Design Firms Show Drop in Optimism Amid COVID-19
The Q2 Houzz Renovation Barometer shows a plunge in confidence as businesses face fallout from the pandemic
Firms in the residential remodeling industry reported shaken confidence in the market for the next three months, new data from Houzz show, as the effects of the coronavirus pandemic are felt throughout the industry.
“Despite beginning the year confidently, with a long backlog of work and high expectations, firms in the residential construction sector and the architectural and design services sector have experienced a sudden, dramatic shift in the wake of the COVID-19 pandemic,” says Marine Sargsyan, Houzz senior economist.
“Despite beginning the year confidently, with a long backlog of work and high expectations, firms in the residential construction sector and the architectural and design services sector have experienced a sudden, dramatic shift in the wake of the COVID-19 pandemic,” says Marine Sargsyan, Houzz senior economist.
A score higher than 50 indicates that more firms reported increases than decreases in their business expectations. Q2 2020 marks the first time since the Houzz Barometer began in 2015 that scores have fallen below 50.
Construction Firms
1. Expectations for business activity dropped dramatically. Build-only remodelers and design-build remodelers reported dramatically lowered expectations for business activity going into the second quarter of 2020. Their lowered sentiments caused the Expected Business Activity Indicator (one component of the Barometer) for construction to fall to 18, down 56 points compared with the start of the first quarter of 2020. Expectations dropped both for inquiries from would-be clients and for new committed projects.
Compared with a year ago, the Expected Business Activity Indicator for construction firms is down 57 points, meaning that year-over-year sentiment is dramatically more negative.
The Expected Business Activity Indicator is based on survey questions that asked businesses to report whether they expected the number of project inquiries and new projects to increase, decrease or be unchanged in the coming three months compared with the prior three months. A score higher than 50 indicates that more firms expected increases than decreases. Therefore, this part of the Barometer indicates that at the start of second-quarter 2020, business activity expectations for construction firms are much lower than they were at the start of the year.
Construction Firms
1. Expectations for business activity dropped dramatically. Build-only remodelers and design-build remodelers reported dramatically lowered expectations for business activity going into the second quarter of 2020. Their lowered sentiments caused the Expected Business Activity Indicator (one component of the Barometer) for construction to fall to 18, down 56 points compared with the start of the first quarter of 2020. Expectations dropped both for inquiries from would-be clients and for new committed projects.
Compared with a year ago, the Expected Business Activity Indicator for construction firms is down 57 points, meaning that year-over-year sentiment is dramatically more negative.
The Expected Business Activity Indicator is based on survey questions that asked businesses to report whether they expected the number of project inquiries and new projects to increase, decrease or be unchanged in the coming three months compared with the prior three months. A score higher than 50 indicates that more firms expected increases than decreases. Therefore, this part of the Barometer indicates that at the start of second-quarter 2020, business activity expectations for construction firms are much lower than they were at the start of the year.
2. Project wait times held steady nationally. Construction businesses that are focused on remodeling reported that wait times before they can take on a midsize project from a new client now average 5.4 weeks, unchanged from reported wait times at the start of the previous quarter.
One year ago, the national average wait time was 6.5 weeks, meaning the average wait time has dropped by 1.1 weeks.
Among construction firms, design-build remodelers have the longest average wait time before they can take on a midsize project: 5.8 weeks, down from 5.9 weeks at the start of the prior quarter. Wait times for build-only remodelers average 5 weeks, flat with the start of the previous quarter.
One year ago, the national average wait time was 6.5 weeks, meaning the average wait time has dropped by 1.1 weeks.
Among construction firms, design-build remodelers have the longest average wait time before they can take on a midsize project: 5.8 weeks, down from 5.9 weeks at the start of the prior quarter. Wait times for build-only remodelers average 5 weeks, flat with the start of the previous quarter.
Of course, backlogs vary significantly by region, as this map shows. The West South Central division of the U.S. (Arkansas, Louisiana, Oklahoma, Texas) has the shortest average wait time (3.5 weeks), while the Middle Atlantic division (New Jersey, New York, Pennsylvania) has the longest (6.4 weeks) among the nine geographic divisions as defined by the U.S. Census.
A score higher than 50 indicates that more firms reported increases than decreases in their recent business activity.
3. Recent business activity tumbled. A drop in new project inquiries and new committed projects in January, February and March lowered the Recent Business Activity Indicator of the Barometer to 48 for construction firms, down 17 points from 65 the previous quarter. Relative to a year ago, this indicator is down 19 points.
The Recent Business Activity Indicator looks at actual activity over the previous three months. In contrast with the Expected Business Activity and Project Backlog indicators, which look forward in time, the Recent Business Activity Indicator looks back. It’s based on survey questions that ask businesses to report whether they observed the actual number of project inquiries and new committed projects increasing, decreasing or staying the same in the previous three months relative to the three months before that.
3. Recent business activity tumbled. A drop in new project inquiries and new committed projects in January, February and March lowered the Recent Business Activity Indicator of the Barometer to 48 for construction firms, down 17 points from 65 the previous quarter. Relative to a year ago, this indicator is down 19 points.
The Recent Business Activity Indicator looks at actual activity over the previous three months. In contrast with the Expected Business Activity and Project Backlog indicators, which look forward in time, the Recent Business Activity Indicator looks back. It’s based on survey questions that ask businesses to report whether they observed the actual number of project inquiries and new committed projects increasing, decreasing or staying the same in the previous three months relative to the three months before that.
Architectural and Design Services Firms
1. Business activity expectations decreased by a striking amount. Architects and interior designers reported sharply lowered expectations for new business activity for the second quarter of 2020 compared with the start of the previous quarter. Their score of 35 for the Expected Business Activity Indicator shows that fewer firms are expecting increases than are expecting decreases. The score is down 33 points from the start of Q1 2020.
Compared with the same period a year ago, this score is down 35 points.
Notably, among the two business groups, architects reported a 21-point decline in overall expectations, to 42, relative to the start of Q1 2020. Interior designers’ expectations declined more drastically, by 53 points to 22, relative to the start of the first quarter.
1. Business activity expectations decreased by a striking amount. Architects and interior designers reported sharply lowered expectations for new business activity for the second quarter of 2020 compared with the start of the previous quarter. Their score of 35 for the Expected Business Activity Indicator shows that fewer firms are expecting increases than are expecting decreases. The score is down 33 points from the start of Q1 2020.
Compared with the same period a year ago, this score is down 35 points.
Notably, among the two business groups, architects reported a 21-point decline in overall expectations, to 42, relative to the start of Q1 2020. Interior designers’ expectations declined more drastically, by 53 points to 22, relative to the start of the first quarter.
2. Wait times fell nationally. The Project Backlog Indicator for architectural and design firms declined to an average of 3.6 weeks nationally at the start of the second quarter of 2020, a decrease of 1 week from the start of Q1 2020.
Compared with a year ago, when wait times were 4.7 weeks, wait times are down 1.1 weeks.
Taking a closer look by professional type, architects have shorter wait times to take on a new midsize project (3.6 weeks, down 0.6 week compared with the previous three months) than do interior designers (3.7 weeks, down 1.5 weeks relative to the start of the previous three months).
Compared with a year ago, when wait times were 4.7 weeks, wait times are down 1.1 weeks.
Taking a closer look by professional type, architects have shorter wait times to take on a new midsize project (3.6 weeks, down 0.6 week compared with the previous three months) than do interior designers (3.7 weeks, down 1.5 weeks relative to the start of the previous three months).
Again, backlogs vary significantly by region, as this map shows. The West North Central division of the U.S. (Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota) has the shortest average wait time (3.3 weeks), while the East North Central division (Illinois, Indiana, Michigan, Ohio, Wisconsin) has the longest (4 weeks).
3. Recent business activity fell. The score related to recent project inquiries and new committed projects in January, February and March dropped to 44, an 18-point decrease from the prior three months. Relative to the same period a year ago, this indicator is down 19 points.
The Houzz Renovation Barometer is based on a quarterly online survey sent to a national panel of U.S. businesses with profiles on Houzz. The Barometer includes three components: Expected Business Activity, Recent Business Activity and Project Backlog (or wait times). Expectations and business activity data are smoothed out to allow for predictable seasonal fluctuations, while wait-time data are not.
The 2020 Q2 Houzz Renovation Barometer garnered responses from 2,055 firms and was fielded from March 26 through April 8.
If you would like to offer your insights on market conditions in your area by joining the Barometer panel, please click here.
Read more Barometer reports
Tell us: How does this report compare with your firm’s experiences? Please share in the Comments.
More for Pros on Houzz
Read stories in our Resilience series
Learn about Houzz Pro software
Talk with your peers in the Pro-to-Pro discussions
Join the Houzz Trade Program
The Houzz Renovation Barometer is based on a quarterly online survey sent to a national panel of U.S. businesses with profiles on Houzz. The Barometer includes three components: Expected Business Activity, Recent Business Activity and Project Backlog (or wait times). Expectations and business activity data are smoothed out to allow for predictable seasonal fluctuations, while wait-time data are not.
The 2020 Q2 Houzz Renovation Barometer garnered responses from 2,055 firms and was fielded from March 26 through April 8.
If you would like to offer your insights on market conditions in your area by joining the Barometer panel, please click here.
Read more Barometer reports
Tell us: How does this report compare with your firm’s experiences? Please share in the Comments.
More for Pros on Houzz
Read stories in our Resilience series
Learn about Houzz Pro software
Talk with your peers in the Pro-to-Pro discussions
Join the Houzz Trade Program
“For the first time since launching the Houzz Barometer in 2015, a greater proportion of firms reported quarter-over-quarter decreases than those reporting increases,” Sargsyan says. “Faced with unprecedented challenges, residential construction, architecture and design firms are adopting business practices including new safety guidelines, remote collaboration tools, and online consultations, invoicing and payments.”
More than 4 in 5 small businesses in the architectural and design services sector and construction sector (84% in each sector) reported that they had been affected by the coronavirus pandemic, according to the Q2 Houzz Renovation Barometer. One of the most common effects cited was project delay, which has hit 75% of the architectural and design sector firms and 78% of construction sector firms. Another was fewer new business inquiries, which 75% of firms in both sectors reported. A third big issue is project cancellations, which 61% of firms in the architectural and design services sector and 63% of firms in the construction sector reported.
Read on to learn what remodeling industry firms had to say about current business conditions. We’ll first look at construction companies and then at firms in the architectural and design services areas. We’ll start with what these firms expect for the next three months, then look at their project wait times and finally at their business activity over the previous three months.