A major housing industry indicator shows that the remodeling sector is cooling off considerably. Overall, however, the numbers suggest a mixed bag of both good and bad.

The Q4 2022 Houzz Renovation Barometer showed that in the 2022 third quarter activity across the construction, residential renovation and architectural design industries slowed down significantly.

A positive note is that these sectors diverge in prediction for the 2022 Q4. The architectural and design services sector, for example, is poised for growth in the fourth quarter. On the other hand, construction numbers indicate slowed activity for Q4.

Marine Sargsyan is a staff economist for Houzz. She said that overall economic conditions are “not showing signs of improvement.” Key operators in design and construction companies are moving forward with caution. They described business activity in the third quarter as “slow” when compared with the second quarter of 2022.

Factors that are contributing to the slow-down include higher labor costs, customer anxiety about rising costs and shortages across all areas of the business, both due to supply chain snarls and cut-back in productivity by cautious suppliers.

Just one example of the latter is Interfor, Canada’s largest lumber producer. It recently cut production by 17% which adds up to 200 million board feet. Interfor officials cited “slowing demand” for its decision.

Sargsyan said the construction professionals she spoke with expressed “mostly neutral expectations” for business activity through the remainder of 2022. At the same time, interior designers and architects say they actually look forward to what is likely to be an increase in their business activity.

Zeroing in on Construction Outlook

In construction, design-build professionals have a different outlook when compared to the build-only sector. The latter expects declines in activity for Q4, but design-build providers say they anticipate increases through the end of the year.

That’s the case even though new inquiries fell considerably in Q3 among both groups.

Another important measure, the Expected Business Activity Indicator, decreased to 50 projects in Q4 compared to 62 in Q3. Furthermore, expectations for project inquiries declined to 47, compared to 62 in Q3. Newly committed projects declined to 53 –- that’s off by 10 points relative to expectations in Q3 which saw the number at 63.

What about next year, and the first quarter of 2023? Well, Harvard University’s Joint Center for Housing Studies recently issued a report that projects “a sharp slowdown in the pace of house remodeling."

The Harvard group’s senior research associate, Abbe Will, cites data from LIRA, the Leading Indicator of Remodeling Activity. It projects that homeowner remodeling (and for repairs) will fall back from 16.1% in 2022 to 6.5% by the third quarter of 2023.

Although remodeling gains are expected to shrink significantly next year, the good news is that homeowners and sitting on record levels of equity they can use for renovation projects, Will writes.

Furthermore, the Inflation Reduction Act recently passed by Congress will soon provide attractive incentives for energy-efficient retrofits for homeowners as well as mitigation projects and disaster repairs.