The Houzz  2017 State of the Industry report, released last week, shows that the majority of residential renovation and design businesses anticipate revenue and profit growth in 2017 following a strong year in 2016.

“Based on some estimates, residential remodeling activity in 2016 surpassed the pre-recession peak, and by far outpaced the recovery of the new residential construction sector,” said Nino Sitchinava, principal economist at Houzz. “Several market fundamentals propelled this expansion, including aging housing stock, recovered home prices, homeownership and home buying concentrated in older and more established households, and finally a massive Baby Boomer population planning retirement in current homes, among others. Houzz research finds that the steady growth of the residential remodeling spend is driven by homeowners tackling multiple projects at a time, embarking on projects with a large scope, and/or installing high end finishes. This trend is likely continue into 2017.”

Major findings from the study, which surveyed 4,800 professionals in the Houzz community:

Bullish on 2017. The majority of home renovation and design businesses on Houzz anticipate more widespread revenue growth in 2017 than they experienced in 2016. Businesses expect their annual gross revenue to grow 10-12 percent on average, compared to 8-10 percent in 2016. Architects are the exception, anticipating seven percent growth in 2017, in line with 2016 expectations. The majority of firms also anticipate profit to grow in 2017 (69-76 percent), again with architects less bullish (57 percent).

Investing in growth. To support revenue growth in 2017, firms across all industry groups plan to focus on larger budget projects (50-63 percent) and to invest more in marketing (45-56 percent). Other common strategies include increasing fees, improving employee productivity and hiring more staff. Company headcounts are also expected to rise in 2017 for two in five general contractors, design-build firms, specialty building and renovation firms (40-46 percent), and one in four design-focused companies including architects, designers and decorating firms (23-26 percent).

2016 a banner year. A third or more of firms across industry groups report that 2016 was the best year in the past 10 years (since 2007). Two-thirds report an increase in revenue in 2016 (63-70 percent), and more than half report an increase in profits (53-59 percent). Overall, companies report more moderate average annual rates of revenue growth in 2016 (7-10 percent) compared to 2015 (9-11 percent) and 2014 (10-13 percent).

Rising labor and materials costs. While revenue increased in 2016, the cost of business also increased, according to three in five or more companies across industry groups (58-76 percent), primarily driven by cost of labor and products and materials. Other commonly cited cost drivers are advertising and marketing expenses, subcontractor fees and business insurance premiums. Rising business costs were among the top business challenges in 2016 cited by companies in nearly every industry group, along with shortage of employees or subcontractors and managing consumer expectations and budget concerns.

 

The Houzz U.S. State of the Industry Study is conducted annually among home renovation firms on Houzz that offer services related primarily to residential renovation and/or design. The study was fielded December 8, 2016 – January 9, 2017.

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