The U.S. remodeling market surpassed $600 billion in the wake of the pandemic, and despite recent softening, it remains 50% above pre-pandemic levels, according to the report Improving America's Housing 2025 released March 20 by the Harvard Joint Center for Housing Studies. However, three issues could jeopardize the ability to meet demand: 1) industry fragmentation, 2) inflation, and 3) shortage of skilled trade labor.
While the report notes an extraordinarily strong remodeling market thanks to aging housing stock and record-high property values, it also says that further investment is needed to address growing needs for energy efficiency and disaster resilience of the country’s 145 million homes.
Five Main Takeaways from the Report:
1. Pandemic Fueled Unprecedented Spending on Remodeling
Home improvement and repair spending jumped from $404 billion in 2019 to $611 billion in 2022 and is expected to remain above $600 billion throughout this year. Homeowners remain focused on replacement projects such as roofing, windows, and HVAC, which accounted for 49% of improvement expenditures in 2023. On average, homeowners spent almost $4,700 on improvements in 2023, nearly 9% above the previous market boom in 2007.
2. Climate Change Necessitates Improvement Spending
The growing frequency and intensity of hazard events like hurricanes, wildfires, and floods have increased spending for disaster repairs to $49 billion in 2022–2023, an astonishing leap from $16 billion in 2002–2003. While few homeowners undertake mitigation retrofits, skyrocketing insurance premiums may provide the motivation to do so: the average homeowner insurance premium jumped 17% between 2021 and 2023. In 2023, homeowners also spent $139 billion to improve energy efficiency, nearly four times the amount spent in 2003.
3. Housing Stock is Older than Ever
With a median age of 44 years in 2023, the housing stock is older than ever, and critical improvements are needed to replace aging components. In 2023, average improvement spending for homes built before 1980 was 24% higher than spending on homes built after 2010, and maintenance spending was 76% higher.
4. Changing Demographics Affect Remodeling Spending
The shifting characteristics of U.S. households continue to reshape both activity and spending patterns in the remodeling sector. In 2023, owners ages 65 and over contributed 27% of total improvement outlays, up from 14% two decades earlier. And as the population becomes more racially and ethnically diverse, households headed by a person of color contribute more to the home improvement market; in 2023, homeowners of color accounted for 23% of improvement expenditures, up from 14% in 2003. Immigrant owners also account for a growing share of the market, up from 8% of expenditures in 2003 to 13% in 2023.
5. Fragmentation, Surging Costs, and Labor Shortages Hinder Remodelers
Despite a flurry of mergers and acquisitions, the remodeling industry remains highly fragmented with large shares of self-employed contractors and small payroll companies. The industry is also hampered by high costs of building materials, including uncertainty around the potential impacts of tariffs and labor shortages.
Between 2015 and 2023, a majority of remodelers reported a shortage of skilled trade workers, including carpenters, electricians, and plumbers. The industry also relies heavily on foreign-born laborers, with immigrants accounting for a record-breaking 34% of the construction trades labor force in 2023.
Summing It Up
In the near term, the remodeling industry faces both challenges and opportunities. On the one hand, elevated interest rates, weak home sales, and a persistent shortage of skilled trade labor are expected to constrain the market. At the same time, massive levels of home equity, a sustained shift toward working from home, and the aging housing stock will support significant investment in home improvement, perhaps most notably among owners who prioritize updating their existing homes over moving.