This article was originally written and published by Qualified Remodeler.

Companies across all sectors of the residential remodeling market have a confident outlook for the next twelve months, with at least half of those surveyed anticipating that 2023 will be “good” or “very good.”

But while businesses expect demand for their services to increase – along with revenue and profits – the rate of growth will be much slower than that of 2022, which was off compared to the four-year high reported in 2021.

Those are among the key conclusions of the 2023 Houzz U.S. State of the Industry report, released this week by Houzz Inc., the Palo Alto, CA-based online platform for home renovation and design. The report, which provides an outlook of 2023 and a review of 2022 performance for residential renovation and design businesses, was based on data reported by more than 2,000 professionals in the Houzz community, according to the company.

“The home renovation and design industry experienced remarkable growth in recent years; however, that growth rate is unlikely to continue in the current economy,” said Houzz staff economist Marine Sargsyan, adding that Houzz’s latest surveys reflect “tempered optimism among professionals, who expect their businesses to experience slowed revenue growth and face headwinds from increased costs of doing business.”

This year, businesses across all industry sectors are anticipating the slowest revenue growth of 0.3 percent to 6.1 percent, since 2018 (6.9 percent to 12.3 percent), Houzz said, adding that revenue growth in 2022 did not meet expectations, likely due to the unusually high performance the year prior.

“In the short run,” Sargsyan observed, “Houzz found that confidence in business performance among professionals in the construction sector is stronger compared to the last quarter of 2022. That said, businesses also report shorter backlogs across the industry compared to a year ago, though they are still longer than pre-pandemic levels.”

According to Houzz, its backlog indicator, which reports wait times in weeks before a company can start work on a new, mid-sized project, shows shorter backlogs than a year ago – at 8.3 weeks for the construction sector and 5.3 weeks for the architectural and design sector, compared to 11.4 weeks and 7.9 weeks, respectively. However, wait times across both sectors are longer than pre-pandemic levels (5.4 weeks and 4.6 weeks, respectively), Houzz said.

Other major findings of the 2023 Houzz U.S. State of the Industry include:

  • Hiring mirrors revenue growth: Many residential renovation and design companies continued to hire employees in 2022 (13 percent to 31 percent), but fewer companies overall increased staff compared with 2021 (18 percent to 34 percent).
  • Costs of doing business continue to rise: More firms cited an increase in the cost of doing business versus those citing a decrease. For 2022, 70 percent to 92 percent of firms reported an increase, compared with 64 percent to 93 percent in 2021. However, while product and material costs continue to lead as the number one cost driver, the share of businesses reporting this as the most significant driver fell by 15 to 29 percentage points.
  • Product and material availability and volatility improve: The availability of products and materials was less of a concern in 2022, compared with 2021, with only three groups citing it as a top three business challenge. Price volatility continues to pose a challenge, although the sentiment is less widespread than in 2021. 

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