The forecast for the home improvement market was revised downward and is now projected to grow by 3.4% this year, a reduction from the 5% growth projected earlier this year, according to the latest home improvement market report from the Home Improvement Research Institute.
The research attributes the revised outlook to several economic headwinds:
Rising Costs and Tariffs: The forecast incorporates the impact of anticipated new Section 232 tariffs on materials like copper and lumber (ranging from 10% to 25%), effective in late 2025. Additionally, tariffs on imports from China (20%), Canada (25%) and Mexico (25%) are included. These factors, along with potential labor shortages, are expected to raise construction costs.
Housing market challenges: The “locked-in effect,” where homeowners with low mortgage rates are hesitant to sell and buy at current high rates, is hindering sales of existing homes. Builders are also cutting prices and offering incentives on new homes due to high inventory. The forecast anticipates a slow rebound in existing home sales, climbing from 4.07 million sales in 2024 to 4.28 million in 2025 and 4.78 million in 2026, but housing starts are expected to remain relatively flat or dip slightly.
Slowing consumer spending and income growth: While consumer spending grew during the first quarter, wage growth is slowing and prices are rising, leading to modest growth in real disposable income. Core inflation is also expected to spike during the second quarter, reaching 3.9% for the year as tariff impacts arrive.
Cooling labor market: While recent job reports show resilience, the forecast anticipates a cooling labor market with monthly payroll gains stalling during the second half of 2025 and the unemployment rate projected to peak at 5% by late 2026.
“While our latest forecast reflects some near-term adjustments due to economic headwinds, the long-term picture for the home improvement market remains one of significant opportunity,” says Dave King, executive director of HIRI. “Looking out over the next five years through 2029, we anticipate a net gain in total market spend of roughly $300 billion in additional spend. While this growth is expected to be stronger toward the latter half of the period, it reflects that the underlying appetite and demand for home improvement projects are still robust.”
The revised forecast also reveals a notable divergence in anticipated growth rates between the professional and consumer markets, highlighting the distinct dynamics affecting these critical customer bases. Consumer market sales growth is expected to grow by 2.6% this year, down from the 4.9% forecast in March. In contrast, professional market sales are projected to grow faster at 4.9%, in line with the March forecast.
Additionally, the report notes a 35% probability of a pessimistic scenario, which includes the potential for a two-quarter recession beginning in mid-2025, driven by deteriorating financial conditions and negative responses to policy assumptions regarding trade and immigration.
About the Author
Jay Schneider
Senior Editor
Jay Schneider is the Senior Editor for Pro Remodeler. He can be reached at [email protected].