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The Industry’s Annual Report
Looking at external factors alone, one might come to the conclusion that 2017 is shaping up into a booming year for the home improvement retailing industry.
After all, this year has seen strong performance in the housing sector, lower unemployment, an energized stock market, a relaxation of lending restrictions and a consumer base with no shortage of home improvement ideas.
So, why is it that the growth experienced by the industry so far this year has amounted to more of a pop than a boom?
Let’s start with the weather.
This has been a particularly odd season for weather across most of the U.S. Some regions had particularly short winters followed by unusually wet springs and summers. Neither of these conditions favors home improvement projects.
In other areas of the country, short winters were followed by incredibly hot and dry spring and summer months where nary a plant would grow (if it were even planted, to begin with).
While it is not particularly unusual to see weather have a regional impact on home improvement activities, in 2017, there was hardly an area of the country that was immune to some kind of unfavorable weather conditions.
In addition to an inhospitable visit from Mother Nature this year, there were other manmade obstacles holding industry growth in check.
The primary culprit here was the double-edged sword we are facing in the housing market. With banks lending money to consumers again and with unemployment continuing to drop, you would think there would be a ready market for home sales.
However, the downside to these positive factors is the increasing price of homes. According to a housing market forecast from the Home Buying Institute, the rising cost of homes in many areas is literally pricing some consumers out of the market.
“In recent years, home values in many cities have been rising rapidly, to the point that they outpaced wage and income growth. This was mostly the result of an imbalance between supply and demand. In many cities across the country, housing inventories are falling short of demand,” the forecast article states.
Rising prices in many markets have seemingly caused some potential homebuyers
to take a wait-and-see attitude on moving, which negatively impacts home improvement product sales.
The final factor that might be restraining the industry from more positive momentum is a little tougher to get your arms around. Let’s just call it a sort of consumer malaise.
If you look at the retail industry in general, consumers seem to be stepping back a bit from spending on material goods. Home improvement has continued to be a bright spot for all retail sectors, but even in the hammer and nail set, consumers are still not letting go of as much of their hard-earned dollars.
By our estimates, what this analysis amounts to is that the home improvement retailing industry is growing at a rate of about 4.5 percent in 2017, a full 110 basis points slower than growth during the previous year and slightly below our predictions. While a good bit of that can be attributed to unpredictable and temporary issues such as bad weather, the other economic factors facing the industry may persist in the months to come.
That being said, we are anticipating slightly stronger growth in 2018 (4.7 percent), fueled in part by the continued economic momentum we are experiencing, as well as a modest uptick from building in areas heavily impacted by hurricanes.
We also anticipate that consumers who choose not to move may begin to tap more readily into their home equity to engage in remodeling projects.
This slightly stronger sales trend should continue through 2019, and then we are anticipating a period of slight cooling as we head into 2020.
There are a few factors to consider that make predicting the direction of any industry difficult.
First is the general unrest many consumers feel about the socio-economic climate of the country. Uncertainty about the economic direction the country, foreign affairs and even social issues can cause a general constriction on consumer spending.
These factors can have a mixed impact on the home improvement industry. On one hand, consumers concerned over world events or economic direction may tighten spending, but they may also spend money on improving their homes.
That’s why 2018 and 2019 might prove to be the best years of growth in the industry if all other factors remain constant. The presidential election looming in 2020 could be enough to make consumers sit on their wallets until all the ballots are counted.
Another more immediate factor that could provide a headwind to industry growth is the direction of interest rates. There has been a general discussion that interest rates will rise in the near future. How much and to what extent this could impact consumers’ willingness to buy remains to be seen.
The final wildcard is, as always, the weather. While we have seen a few years of unfavorable weather conditions for home improvement product sales, one might expect that we are “due” for a weather cycle that could benefit the industry.
Of course, no one has ever gotten rich on their ability to predict the weather.