Niche Markets Offer Opportunity in Otherwise Soft Q3 Remodeling Outlook

Despite a softness in the housing market, certain niches within the remodeling sector have managed to find continued success. This is according to Kermit Baker, chief economist for the American Institute of Architects on a recent Thought Leadership Zoom call hosted by Mark Richardson and Pro Remodeler. Baker reviewed third quarter data from multiple sources, including the American Institute of Architects’ Home Design Trends Survey, the Leading Indicator of Remodeling Activity (LIRA) report from 
the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University, and the National Association of Home Builders’ NAHB/Westlake Royal 
Remodeling Index. The reports essentially showed a stalling market with slow growth. Success varied across sectors of the industry.

Referencing the Home Design Trend Survey, Baker cited statistics from five different sectors: entry-level, move-up, custom and luxury, town house/condo, and second/vacation homes. The survey asks respondents to comment on the state of each sector, and results showed that the entry level market is extremely weak while the custom and luxury market is thriving; the three other sectors fell somewhere in between these poles.

A report from the National Association of Realtors shed some light on this data, reporting that a third of home sales nationally are all cash, a growing trend over the past few months. Given that these transactions are not interest rate or mortgage-rate-sensitive, this gives them a leg up on the rest of the market. While they likely are sensitive to the stock market, the market has been strong recently. Baker identified four niches that are finding success:

The Accessibility Market: The large population of baby boomers is aging, and the existing housing stock doesn’t accommodate their accessibility needs. Mortgage lock-ins make it difficult to move into a home that does fit these needs. Swapping a 3% mortgage for a 6.5% mortgage for a home that is better suited to them is not always a feasible option.

The Resilience Market: Making homes resilient for natural disasters such as floods, hurricanes, ice storms, and wildfires is a niche that continues to be very strong, particularly for those living in disaster-prone areas.

Remote Work: Statistics show that roughly 30% of paid work days nationally are still worked remotely, a percentage that has been steady for around the past two years. This  arrangement has resulted in many homeowners investing in home office remodels. The AIA Home Design Trends Surveys asked respondents “What is the most popular special function room that you’re seeing in the homes that you design?” Home offices have been the top response for several years.

ADUs: Accessory dwelling units have seen a massive spike in recent years. According to data from John Burns Consulting, there were 27,000 ADUs added in California alone last year, which accounts for 40% of the single-family homes permitted in the state in 2024.

Compared with 2018, when there were only 3,000 reported ADUs built, the number of installations has increased nearly tenfold in only six years.

With 90% of these ADUs being rented, this also adds to the affordable rental stock, as they are essentially detached single-family homes.