The Market Outlook for Kitchens and Baths

John Burns Real Estate has published a recent trends report on the state of the kitchen and bath industry which historically has served as a bellwether for home improvement. JBRE, which will be presenting a new market update at the 2023 BKBG Annual Conference, found three green lights, two yellow lights and two red lights for the kitchen and bath market.

Greenlight #1: Backlogs for kitchen and baths remain strong. Backlogs currently average almost four months which should sustain demand through most of the year. Many BKBG Shareholders report that while showroom traffic has declined, the traffic that is coming to the showroom has been exceptionally strong. People continue to invest in their homes.

Greenlight #2: The state of the housing market bodes well for kitchen and bath remodeling. The combination of lack of inventory, aging housing stock and near record levels of home equity speaks to improving what currently exists as opposed to purchasing new. There are more than two million homes that will reach prime remodeling years through 2027, according to the U.S. Census Bureau. The average U.S. homeowner has $350,000 of equity in their current home. Burns predicts the combination of equity and home age will result in 1.3 million kitchen and bath renovations to homes that are 20 to 40 years of age between 2025 and 2027. Burns also estimates that 20% of home improvements will have a price tag exceeding $25,000. The third factor is interest rates. Having doubled during 2022 and the Federal Reserve shows no signs of not increasing rates to higher levels, homeowners with mortgage rates of 4% or less are not likely to move up to a new home with interest rates of 7% or higher.

Greenlight #3: Smart appliances, faucets and other home products will fuel demand for kitchen and bath renovations. Plumbing and appliance manufacturers have a robust pipeline of new product introductions.

Yellow light #1: Consumer signals are mixed. Burns found that consumers are pulling back on the amount of their remodel spend and taking on smaller projects due to increased costs and market uncertainty.

Yelllow light #2: Supply chain continues to present challenges. Some kitchen appliances continue to be at least 16 weeks of lead time creating more doubt in the market.

Red light #1: Higher inflation and interest rates is throwing water on consumer interest. The first projects that are typically canceled are the high dollar expenditures ($50,000+), especially when the cost of financing continues to climb.

Red light #2: Labor shortages and costs are not expected to improve any time soon. Design build and installation firms will continue to face challenges attracting and retaining qualified trade professionals which is likely to limit a firm’s growth opportunities.