Will inflation freeze out a hot home improvement market?

If you read the news, turn on the radio or have a friend­ly chat with cowork­ers at the water cool­er, infla­tion is a top­ic that tends to dom­i­nate the con­ver­sa­tion — and for good rea­son. Wide­spread price increas­es are affect­ing most people’s day-to-day lives. While this dis­cus­sion applies to many mar­kets, for our read­ers, it’s impor­tant to note the impact on the home improve­ment market.

COVID-19 Provides an Unexpected Boost

Sup­ply and demand are dri­ving fac­tors in any mar­ket, and home improve­ment is no dif­fer­ent. The indus­try has expe­ri­enced a per­fect storm of events lead­ing up to mate­r­i­al short­ages that are still caus­ing strug­gles well into 2022.

When COVID-19 emerged, much of the coun­try and econ­o­my shut down, fuel­ing expec­ta­tions that the econ­o­my would fall off a cliff. While it did just that in some sec­tors, the home improve­ment indus­try behaved dif­fer­ent­ly.

As home­own­ers spent more time in their homes than ever before, many decid­ed to final­ly take on the home improve­ment projects they had pre­vi­ous­ly put off. Unfor­tu­nate­ly, a good num­ber of sup­pli­ers of com­modi­ties and prod­ucts stopped pro­duc­ing, expect­ing demand to drop. That led to a high-demand/low-sup­ply envi­ron­ment, forc­ing prices higher.

Inflation Hammers Home Improvement

Since the start of the pan­dem­ic, numer­ous fac­tors have con­tin­ued to ele­vate prices:

• Sup­pli­ers can­not get mate­ri­als fast enough.
• Pro­duc­tion labor is hard to come by.
• Home pur­chas­ing and build­ing activ­i­ty remain above pre-pan­dem­ic levels.
• There is a short­age of skilled tradespeople.
• Glob­al con­flicts con­tin­ue to add blockades. 
  

With all of these head­winds, demand remains quite high, keep­ing prices on a steady rise for large­ly scarce goods.

How­ev­er, the cur­rent envi­ron­ment can­not last for­ev­er. Over­all, infla­tion as of April 2022 was at 8.3% — sig­nif­i­cant­ly high­er than what we have seen in recent his­to­ry. The price of food has increased 9.4%. Gas prices have risen more than 40% (not to men­tion the more than 80% increase in oil prices).

These fac­tors affect most people’s dai­ly lives. With wages up only about 4% in the same time­frame, con­sumers will begin to rethink sec­ondary spend­ing in areas such as home improve­ment, as food, gas and oth­er neces­si­ties become less affordable.

Signs Suggest a Cooldown

We expect to see a cool­ing off in home improve­ment demand this year because of the above cir­cum­stances. In some sit­u­a­tions, con­sumers will opt for more afford­able prod­ucts. How­ev­er, in oth­er instances, we will see them forego pur­chas­es alto­geth­er. The mar­ket is still in a strong posi­tion, but we do not expect a third straight year of dou­ble-dig­it growth in home improve­ment prod­uct pur­chas­ing spend.

No mat­ter what forces act on the mar­ket, the Home Improve­ment Research Insti­tute pro­vides the research and insights your com­pa­ny needs to make informed deci­sions. Con­sid­er HIRI mem­ber­ship to stay up to date with the lat­est forecasts.