It’s busy season for many trades in our industry, particularly those exterior and landscape trades that have been waiting for the return of warmer weather. Our market research team has been tracking business confidence among trade professionals quarterly since 2018. Historically, the data shows that the second quarter often sees a positive bump in contractor activity and subsequent building material sales. However, this is not the case we see for Q2, 2024.
Contractor Confidence Is Still Securely Positive
The prior three quarters saw Contractor confidence to get new business in the next 6 months hold strong, reaching 85/100 on our combined trades confidence index. The Q2-2024 score on that same index is 82/100. On an index, 50 is the tipping point between negative (0-50) and positive (50-100), so a score of 82 on the Farnsworth Contractor Index means that as an industry overall, we are still very much in positive territory. Further, this level of contractor confidence is on par with this time last year.
To keep Pro's confidence high, be sure your teams are working to remove any of the barriers to homeowners' confidence and willingness to start home improvement projects and do what you can to cater to the price trade-offs that are being made. More on that topic in a moment.
Contractor Backlogs Remain Strong
Backlog activity is another primary metric that indicates contractor business health. Backlogs are holding steady and have even increased among some trade segments, and that's not the only positive sign that pros are confident about the near-term of their business outlook.
Beyond backlogs, the repair and remodel segment of the market is positioned to continue delivering strong demand and keep the home improvement industry productive throughout 2024 and in 2025. Beyond the necessity of repairing existing housing stock that is on average four decades old, homeowners remain more interested right now in improving their existing homes than selling and buying a different home.
According to findings by The Home Improvement Research Institute, 8 in 10 homeowners would need mortgage rates to decrease to 4% or less or them to consider moving, and with the Federal Reserve signaling resistance to drop the Federal Funds rate anytime soon, demand for home improvement will bolster building products sales and project activities.
The way we see the current market dynamics, capturing demand is coming down to matters of trade-offs that homeowners are making in order to complete projects in a more budget sensitive way than in the 2020-21 home improvement boom. Trade-offs they are making are reaching across decisions, including:
- Who'll do the work and whether to DIY or hire a Pro
- Which type and grade of materials to use
- Where they can get the most value
- When they will do the work
- How much of the work they will do now versus later
Focus on Competing Well
As homeowners are in a position to make trade-offs, competition levels remains elevated across the channel. In Q2 of 2024, Pro sentiments on business factors related to competition levels have continued on trend with what our team reported on for Q1 of 2024, notably that,
- Pros' volume of new leads remains at or above 2023 levels
- Project revenue is up QoQ and YoY
Ultimately, market demand is still there for home improvement. Capturing that demand is a matter of the increasing competition that manufacturers, retailers, and Pros alike are facing now compared to the market environment in 2020-21.
Material Pricing Remains a Primary Headwind for Home Improvement Projects
Coming out of the home improvement boom, there have been two primary headwinds we’ve been dealing with as an industry over the last two years: material availability and price.
Material Availability
Availability has been a hot topic since the height of the pandemic, and had become less impactful excluding certain product categories. Right now Pros view of material availability is at or near all time highs, meaning they feel materials are very much available, which changes the way they make purchasing decisions.
Material Prices
On the other hand, material pricing has seen an increase in importance over the past year or so and continues to be a large driver of purchase decisions across customer types, including trade professionals. The good news here is that Pros are also increasingly seeing more pricing stability with statistically significant improvements over this time last year. However, their views on pricing stability remain more negative than views on availability, so nailing your pricing strategy should continue to be a focus for your businesses.
Your Next Steps for Winning in 2024 and 2025
The pace of change for the home improvement market has been extremely rapid since 2020, and there remains to be the potential for rapid change heading into 2025 with the dynamics over the last few months and geopolitical events that can continue to disrupt consumer confidence. To lead your organization in the right direction, it is a requirement that you keep a pulse on the sentiments of both the pro and the consumer as it relates to home improvement, because the two are often intertwined.
Based on this quarters' reporting, we advise that you and your teams remain highly attuned to the budget sensitivity of the homeowner, because their budgets drive projects, which drives product sales and contractor activity levels. Continue to do the work required to be aware of how your customers' behaviors are changing as macro-economic circumstances create sentiment shifts.
For deeper industry insights on what this means specifically to your business and what to be paying attention to going forward regarding your particular customer base, your brands and your products, simply schedule a consultation about commissioning custom market research.
And be sure to check out the full report of our most current Farnsworth Contractor Index below:
