The current economic situation is putting a strain on individuals and industries across the United States, which has a direct impact in the housing market and for the manufacturing sector. In order to prepare adequately for what that means in 2025 and beyond, building products and home improvement manufacturers must gain insight into emerging market trends and the current attitudes and behaviors of customers - both DIYers and Pro.
That will enable your product development, channel, and marketing teams to plan accordingly and make adjustments to account for primary industry drivers.
What to Include in Your 2025 Strategy
As your internal teams strategize about product development, marketing efforts, and channel selections for the upcoming year, our team at The Farnsworth Group recommends you make the following measures a priority:
- Understanding current demand - who is buying, how, where, why
- Updating your merchandising strategy amid ongoing price sensitivity
- Focusing on nurturing brand loyalty
Let's dig deeper into why these three focuses should be core to your go-to-market strategy and the efforts of your teams.
1. Understand Where Demand is Coming From in 2025
A growing portion of demand will be coming from repair and remodel activities on existing housing stock in 2025.
The current market conditions are still facing a degree of uncertainty such that you can find data to support almost any argument you want to make, and if you spend enough time following various housing market commentators, you will hear just about every conceivable case to be made.
So, what should you trust? We look at various market fundamentals, and from those fundamentals, our position has been—and remains to be that the existing home segment and contractor side of the market represents opportunity for growth given home equity remaining strong, median age of the home is 40+ years, and mobility continues to decline.
Though there is high demand for new single-family homes, starts are restricted due to decreased availability of funds, material costs, high labor costs and low labor pool, along with increasing mortgage interest rates driving down affordability. Increased resale inventory and reduced demand has put a damper on the housing market generally.
As a result of the lack of affordability—driven by interest rates, construction material costs, land and regulatory costs—there has been a decline in homeowner mobility.
This has paved the way for increased remodeling activities and investment into ADUs over moving houses. With more homeowners staying put and substantial equity in their homes from large home value gains from 2020 to the first half of 2023, individuals will continue to turn to contractors and home improvement professionals to complete larger renovation projects to make their home compatible with their evolving lifestyle and what they desire for the next phase of their life.
The existing supply of resale homes is still only about a four-month supply, increasing compared to one year ago - based on data from the U.S. Census Bureau and the National Association of Realtors.
The existing supply of new homes is a seven-month supply, holding constant compared to one year-ago. Compare both of those figures to what is considered a healthy market, or about a six-month supply.
In contrast to the last couple of years, overall existing home sales are down substantially in 2023 and 2024.
The Housing Affordability Index—which measures whether a typical family earns enough to qualify for a mortgage—is at its lowest point in 20 years, according to the NAR. As a result, would-be buyers are feeling compelled to delay their purchase. Because affordability is low, housing stock is not moving at a rapid pace as it was in 2020 and 2021. Since it is generally accepted that the Fed prime rate will remain elevated at between 5-6%, keeping most mortgage interest rates above 7%, and this for the foreseeable future, the pool of available home buyers is also anticipated to remain low until the cost of debt declines and more individuals and families are able to qualify for a mortgage.
The Fed prime rate did remain elevated at between 5-6% throughout 2024 as expected, keeping most mortgage interest rates above 7% for the majority of the year. Looking towards 2025, this dynamic is expected to change ever so slightly, with some small basis point decreases rolled out iteratively by the Fed. As a result of these inflation-cooling measures, the pool of available home buyers is also anticipated to remain low until the cost of debt declines and more individuals and families are able to qualify for a mortgage.
Don’t Stop Investing in Understanding Your Customers
The worst kind of scenario you face in 2025 is losing market share because of a lack of information, which leads to taking the wrong actions, and losing relevance among your customer base. Remember, it can take decades to recover market share that was lost over just a year or two, so tread carefully.
As you compete in 2025, you want to make sure your dollars are well spent, and that means investing them in specific activities based on reliable data and insights. You need to hear directly from your customers about which media channels they are using to conduct project and product research specific to your category during their path to purchase.
Use the information you have gathered that sheds light on customer usage, attitudes, and path to purchase behaviors to prepare your product messaging for 2025 marketing campaigns. Know who to target, what to say to them, where to say it, and when to say it.
Also, understand that, as they have been for over a year now, consumers are still suffering a lack of confidence heading into 2025 because of uncertainty regarding the economy, high mortgage rates, and the cost of home improvement materials among other cost-of-living increases. How you communicate with them will be critical for maintaining and gaining share in competitive markets and increasing revenue.
Qualitative and quantitative customer usage and attitude (U&A) research will provide you with this information. We recommend you first lean into qualitative research to understand more deeply what is influencing customer behaviors, especially as market conditions are shifting.
2. Update Your Merchandising Strategy
A strong merchandising strategy is made up of three primary components: What you should make, where you should sell it, and how you should price it.
Throughout 2021 and 2022, many manufacturers kept up a steady cadence of price increases without causing damage to unit sales. Throughout 2023 and 2024, many manufacturers’ unit sales declined and they have held pricing steady due to supply chain pressures preventing them from meeting end-customer needs for lower materials prices.
Generally speaking, in 2024, the manufacturers that were able to reduce internal costs in order to decrease prices for end-customers were able to increase market share. A key reason for this is the current budget constraints of homeowners and their reduced confidence. This market reality is expected to continue in 2025.
For the past 3 years, consumer confidence has been in decline, to levels not seen in more than a decade. Lower confidence often results in lower spending among consumers when it comes to investing in remodeling or home buying. Confidence, and therefore increased pricing sensitivity, is being driven by inflation (everything costs more) and uncertainty on a variety of fronts such as fears of recession.
"Heading into 2025, your teams need to continue evaluating internal pricing practices and create appealing product mixes of good, better, best options at different price points. This breadth of SKUs will ensure your customers who are industry professionals have a wider variety of options as they face budget-sensitive homeowners and building owners." - Grant Farnsworth, President of the The Farnsworth Group
We saw over and over again in 2024 that homeowners and contractors alike made changes to the project plans because of facing pricing pressures. That $100K remodeling project became a $75K project because of rising costs to borrow money and inflationary pressures on budgets. In the first half of 2024 homeowners have been citing the cost as the biggest challenge with their home improvement, maintenance or repair project, much more than other challenges, such as project timelines, finding a contractor, or product knowledge.
We tracked this concept all throughout 2023 and have continued to track this in 2024 in our 2024 Quarterly Homeowner Activity Tracker. What we found is that intent to complete home improvement projects costing less than $5,000 has remained strong despite lower consumer confidence. Intent to complete a larger project, costing over $5,000, on the other hand has decreased.
Homeowners are having to make concessions and that is putting contractors on their back foot to really focus on cutting material costs or provide options to win the project bid and keep their businesses running at a decent profit margin.
Additionally, customers are looking for options that are “good enough” to get the job done, and they may be more hesitant to splurge on the “best” option available to them without having a compelling reason to do so. Look at your Product Development pipeline. Make sure you understand which features are critical, versus which are value-add features that can command a premium.
Your next move should be to provide SKUs that cover your bases from good, to better, and best at varying price points. Use custom market research on your unique customer base to find out directly from them what they value and how much by letting that data inform your merchandising and pricing practices in 2025.
Once you have these data-based insights, use them to your advantage in product line reviews. Suppliers are demanding more and more that you be the category captain and come to any review armed with information to support your case for increased shelf space, or a reason to promote your brand over another.
One other note: Focus your sales forecasts on unit sales rather than dollars to benchmark your performance metrics.
3. Work to Reduce Brand Switching Among Customers, Especially Pros
Competition normalized in 2024. Expect to continue to see this more traditional, competitive environment where you must maintain your customer base despite ongoing levels of brand switching behaviors among pros and homeowners through 2025.
In August 2023, about 40 percent of contractors tried a new product for the first time, and roughly 30 percent tried a new brand or manufacturer for the first time. Additionally, about 24 percent reported that the rising costs of home improvement materials and products led them to purchase a cheaper brand or product, and about 23 percent also purchased less than planned.
In 2022 and 2023, you may not have felt the impact of brand switching to your revenue because there was a high increase in total demand. However, that tuned changed in 2024. While remodeling activity had been steadily rising since 2019, that growth is slowed in 2023 and declined XX percent in the first half of 2024. The good news is that remodeling activity is forecasted to rebound in 2025.
Different product categories are expected to grow at different rates. For specifics on your product category, we recommend you become a member of The Home Improvement Research Institute (HIRI), which makes product category specific size of market forecasts available to its members multiple times per year. Learn more >>
Your Product and Channel teams should be working to refine your SKU mix to cover good, better, and best options to help prevent your homeowner and Pro customers from switching brands and making it more logical for them to remain loyal to your brand within their project’s budget constraints.
To this end, your Brand and Marketing teams should be working to understand your Brand Health. This is feedback from product buyers that provides your organization with critical metrics on brand awareness, consideration, use and perceptions. By tracking your Brand Health over time, you’ll be equipped with insights needed to know where you must focus in the sales funnel, and what changes may be needed to drive loyalty. This may be marketing spend, media allocation, product placement or event product satisfaction.
What are the Next Steps for Your Teams to Prepare for 2025?
To keep products moving in 2025 and beyond, building products, home improvement, and lawn & garden companies will have to compete for market share and present a strong value proposition to more price sensitive customers.
If you are plagued with questions about what’s going on in the mind of your customers, how your brand health is fairing, and what kinds of markets you should be targeting to achieve YoY company growth, our research team at The Farnsworth Group can help.
For more than 30 years, manufacturers and suppliers in the building products, home improvement, and lawn & garden industries have trusted our primary research team to gain deep insights in their customers’ behaviors, their go-to market strategy opportunities/risks, and their overall market presence.
