Real Estate Investors, Looking to Differentiate Their Properties, are Key Sources of Market Strength

By NKBA Editorial Staff

Traditional homeowners aren’t the only factor in the expected expansion of the residential kitchen and bath market this year. According to findings reported in the NKBA 2025 Kitchen & Bath Market Outlook, this modest growth will also be supported by renovations undertaken by so-called “fix-and-flip” investors, as well as rental property owners.

In both cases, these investors view beautiful kitchen and bath designs as differentiators that will enhance the value of their properties — and their attractiveness to buyers and renters. Collectively, they’re expected to contribute more than $47 billion to the residential K&B market this year.

The report includes additional insights about how this group of investors will be a significant part of the K&B market in 2025:

“Fix and flip” investing will grow slowly

Nearly all flipped homes include a kitchen and bath remodel, which means investor K&B spending is closely tied to overall fix-and-flip trends. K&B industry pros report that they expect moderate growth in fix-and-flip kitchen and bath spending 2025 as these specialized investors look to make their properties stand out through upgrades in two essential areas of the home.

Flippers see high ROI in kitchen and bath upgrades

Flippers tend to invest most heavily in kitchen and bathroom renovations, indicating a higher ROI compared to upgrades to other areas of the home.

On average, 24% of flippers’ budgets are spent on kitchens, and 19% is spent on baths, making these two spaces the primary vehicles for increased home value through repairs and renovations.

Flippers spend an average of $14,700 on a kitchen renovation and $11,500 on a bathroom renovation.

Flips expected to increase after recent decline

K&B spending on investment homes declined last year as flipped home transactions declined. In Q4 2024, 44,000 units were sold, down 4.6% year-over-year. However, analysts expect that trend to reverse in 2025.

Rental properties continue to be a significant K&B end market

Rental properties remain an important part of the K&B renovation landscape, and these renovations are predicted to total $40.3B this year. Multifamily units will account for the majority of this spending at $21.7 billion (64%), while single-family rentals renovations will total approximately $18.6 billion (46%).

Resilient home features, such as hard surface flooring, seamless countertops and stainless-steel appliances, are gaining in popularity.

“We expect that new construction K&B spending will dip slightly in 2025 as builders confront multiple challenges, including rising new home inventory levels, increasing resale competition and a stubbornly high mortgage rate environment,” said NKBA I KBIS Global President & CEO Bill Darcy. “That makes the spending from residential real estate investors like flippers and rental property owners even more essential to keeping the residential K&B market stable and resilient.”

To learn more about the demographic trends that are shaping the K&B market, download the full NKBA 2025 Kitchen & Bath Market Outlook report here.

Older Homeowners and Millennials are Spending Most on Renovations

By NKBA Editorial Staff

The headline from the NKBA 2025 Kitchen & Bath Market Outlook report is an expected return to modest growth this year — the report projects that U.S. residential kitchen and bath spending will increase by 0.8% to $235 billion in 2025, up from $233 billion last year.

Generally speaking, households motivated by life events, lower borrowing costs, and high home equity levels are expected to spend more on kitchen and bath projects in 2025. But a deeper dive into the report and its data-driven insights offers important clues into specific demographic trends that are impacting the health of the K&B industry.

Here are a few key findings:

Spending increases with wealth accumulation and life events.

Focusing on the factors influencing K&B spending, the research highlights two key life stages that move homeowners to invest in renovations. The first typically occurs when homeowners are nearing 40 years old, with life events and increased wealth serving as catalysts for home renovations. The other occurs with homeowners aged 55 to 59 years old as they prepare to make home improvements that will allow them to age in place.

Some K&B pros report strong results from boomer-aged clients, who tend to have larger amounts of home equity to leverage. These older homeowners either tap into that equity to make improvements to their existing homes, or, when they sell and downsize, use it to improve their new, smaller home.

More millennial households are pursuing large remodels

As the number of millennial households (35-44) grows in 2025, they are expected to take on larger remodeling projects.  In contrast to the decline in boomer households, millennials represent a new and expanding wave of homeowners moving into their prime renovation years. It’s a trend that is expected to continue as this group ages and shifts into an ownership phase of life.

The impact of older homeowners and their aging-in-place remodels 

The biggest drivers of K&B spending continue to be homeowners born before 1970 (currently aged 55+), who now control $110 trillion in wealth. Those born in the 1960s have a collective net wealth of $44 trillion, which is almost twice as much as those born in the 1970s ($23 trillion) and four times as much as people born in the 1980s ($10 trillion).

While younger households are emerging as a growing force in the K&B market, older households – especially those aged 55 and above – continue to dominate spending.  Their wealth accumulation, particularly in home equity, enables larger-scale renovations, ensuring they remain a key driver of market growth.

Older households move less than younger households, increasing the importance of aging-in-place remodels. More than half (56%) of owner households are headed by someone aged 55 or older. The aging of the U.S. household population continues to put more emphasis on aging-in-place remodels vs. remodels by recent movers.

High-income homeowners, high-cost renovations

Predictably, high-income homeowners are most likely to embark on high-cost renovations. In turn, these highest-priced projects – specifically kitchens above $100K and bathrooms above $60K – are expected to drive 22% of industry activity in 2025, making these high-value renovations a key contributor to overall market growth.

Most homeowners finance their K&B remodeling projects with cash. Nearly three-quarters (71%) of funding for K&B projects comes from cash or savings reserves. Home equity is the next biggest source of funding (10%), although home equity’s contribution to K&B renovations is significantly larger for big projects like kitchen and bath additions and full kitchen remodels. This number could continue to rise, as Americans now have more than $35 trillion in home equity, up 81% from the end of 2019 — an average of about $406,000 per U.S. homeowner – and financing conditions improve.

“It’s important to pay attention to the generational and income factors that will have a major impact on the health and growth of the K&B industry in 2025,” said NKBA I KBIS Global President & CEO Bill Darcy. “While older homeowners, many with significant cash and savings at their disposal, continue to be an important growth engine, it’s encouraging to see more millennial-aged homeowners moving forward with large K&B renovations.”

To learn more about the demographic trends that are shaping the K&B market, download the full NKBA I KBIS 2025 Kitchen & Bath Market Outlook report here.

New 2025 Kitchen & Bath Market Outlook and Q4 2024 Kitchen & Bath Market Index Reports Show Clear Signs of Expansion Despite Lingering Uncertainties

By NKBA Editorial Staff

Two new reports developed by NKBA’s research team provide a comprehensive analysis of kitchen and bath market trends and industry expectations for 2025. 

Following two consecutive years of slight contraction, the kitchen and bath industry is poised for modest but meaningful expansion in 2025, according to key findings from the NKBA / John Burns Q4 2024 Kitchen & Bath Market Index (KBMI) and the 2025 Kitchen & Bath Market Outlook reports.

The Kitchen & Bath Market Index (KBMI) rose to 59.7 in the final quarter of 2024, an increase from 53.4 in the previous quarter, indicating some signs of industry strength despite ongoing uncertainties. Demand for kitchen and bath (K&B) products and upgrades strengthened as sales rose slowly across all segments.

Here are some of the additional insights about the strong close to 2024 and the positive outlook for 2025:

Important Fourth Quarter Momentum 

Several key themes emerged from the Q4 2024 KBMI. Importantly, the Current Activity Index strengthened across all segments as industry pros report that consumer uncertainty appears to finally be ticking down with the resolution of the presidential election. K&B firms expect spending to increase with incremental confidence in the economy. More firms feel poised to meet their growth targets now, compared to Q3 2024, despite the lingering concerns around the skilled labor shortage and ongoing higher costs. Revenue growth averaged +3.4% year over year (YOY) in Q4 2024, as K&B manufacturers’ orders rose 2.5% and retailers’ sales grew by 4.4% YOY.

Positive Projections for 2025

K&B professionals expressed YOY revenue growth projections for 2025 ranging from +2.4% for retail sales firms to +7.5% for building and remodeling firms. Full-year 2025 revenue growth expectations averaged +3.7% YOY on a revenue-weighted basis. While existing home sales were down for the year, they increased during the final quarter of 2024. Remodeling-in-place appears to be a critical substitute for relocation moving forward. Only one in five K&B professionals say that weak existing home sales are holding them back.

The Big Picture: A Return to Gradual Growth

The NKBA Kitchen & Bath Market Outlook Report is more in-depth than ever — it now includes estimates for both consumer and investor K&B spending and insights from brand-new data sources. Based on this more sophisticated perspective, the report projects that U.S. residential kitchen and bath spending will grow by +0.8% to $235 billion in 2025 — up from $233 billion last year when applying the same new methodology.

Professional-led K&B remodels are expected to rise by 2.9% in 2025 and continue to outpace DIY activity (+0.6%) in 2025. In a reverse from 2024, remodeling spending on kitchen and bath products is expected to outpace new construction spending.

X-Factor #1: What Will the “Missing Middle” Do?

The big question for 2025 – one that will be key to a robust recovery in K&B remodels – is whether middle-income consumers will jump back into the renovation market after two years on the sidelines. These homeowners living in mid-range homes are the most likely to tap into home equity, but they’ve also proven to be the most rate sensitive. If short term borrowing costs drop, this critical group could finally embark on renovations in increasing numbers.

X-Factor #2: The Impact of Changing Federal Policies

The possibility of increased tariffs and changes to immigration policy could elevate the cost of kitchen and bath materials and labor. These potential policy changes present downside risk to the positive forecast for 2025, both directly through higher costs, and indirectly through the pace at which the Fed lowers interest rates if progress on inflation stalls in 2025.

“There’s no doubt this new research will be the subject of much conversation at KBIS 2025 as we explore where our industry is heading and why we feel hopeful and optimistic heading into Q2 and beyond,” said NKBA I KBIS Global President & CEO Bill Darcy. “While our industry is poised to finally realize much-anticipated growth in 2025, we have to keep a close eye on some key uncertainties that could hinder this expansion.”

For more insights into where the K&B industry is heading this year, download and read the full 2025 Kitchen & Bath Market Outlook and Q4 2024 KBMI reports.

K&B Companies are Utilizing a Range of Strategies to Minimize the Effect on Their Bottom Line

By NKBA Editorial Staff

As the kitchen and bath industry continues to navigate the implications of a significant skilled labor shortage, the NKBA has conducted the NKBA I KBIS Skilled Labor Workforce Study to better understand businesses’ experiences and expectations as they work to meet this challenge. 

The survey of more than 400 NKBA members and other industry professionals explores current staffing needs, difficulties hiring skilled labor, hiring incentives, barriers to hiring, and other issues related to the shortfall.

These K&B industry pros say their workforces are predominantly (66%) comprised of full-time employees, and more than half (51%) of businesses are currently searching for more full-timers. Most (57%) are paying above-market wages – typically 8% or more — to attract and retain skilled labor. But the reality is that more than a third must resort to hiring less experienced or qualified workers to meet their basic staffing needs.

Here are some of the other key findings in the Skilled Labor Workforce Report:

Full-Time Employees Wanted

The consensus among businesses in the kitchen and bath industry is that the skilled labor shortage has risen sharply over the past five years. Specifically, 58% of K&B businesses are currently experiencing a moderate or severe shortage, up from 41% five years ago. More than half of businesses indicate the greatest need is for full-time workers. This group is the most difficult to hire – especially those with more than five years’ experience. The most in-demand positions are installers and carpenters, both cited by 42% of respondents.

Root Causes of a Persistent Problem

Businesses shared that changing lifestyle and work expectations (33%), a generational shift away from trades (29%), as well as a lack of education/training (29%) are the most common causes of the ongoing skilled labor shortage. Very few (8%) cited their hiring and retention strategies as a factor.

Scarcity of experienced workers and a general lack of applicants are the top barriers to recruitment. Others include the ability to offer competitive wages and high training costs associated with onboarding.

Feeling the Impact: Project Delays and Increased Workloads

Project delays — both starts and finishes — and increased workloads for existing employees are the biggest negative impacts on business caused by the skilled labor shortage. On average, 16% of projects are delayed due to the labor shortage. Those delays have the biggest impact on customers, primarily affecting project starts and finishes, as well as longer delivery timeframes and waits for products.

How Businesses are Coping

Businesses are adapting to the skilled labor shortage by expanding benefits and retention strategies, improving recruitment, and investing in educational programs – all efforts to attract new workers from a limited pool.

They are also doing more to improve conditions for their current employees. More than a third of the surveyed businesses (35%) have invested in digital tools and software to reduce the strain on existing staff. They’re also tapping into other external solutions by outsourcing products and services. Internally, businesses are streamlining workflows and implementing new training programs to achieve greater efficiency.

One area of opportunity in retention strategy is work-life balance. Participants cited better benefits (including work-life balance) as one of the top reasons for voluntary turnover (25%), but very few (7%) report their businesses are addressing work-life balance as part of their strategy. 

“We are experiencing a major skilled labor shortage that is greatly impacting our industry, and it’s not going away anytime soon,” said Bill Darcy, Global President & CEO, NKBA | KBIS. “Kitchen and bath companies are being smart and resourceful in confronting this challenge as best they can. But tackling the underlying issues head-on requires big thinking and bigger action, from developing new educational models to changing cultural dynamics around professions we desperately need to revitalize.”

To read additional insights from K&B industry professionals, download the full NKBA I KBIS Skilled Labor Workforce Report here.

More Entry-Level Homebuilding Means Smaller Kitchens and Baths, but Reliable Revenue

By NKBA Editorial Staff

Prevailing economic factors, especially persistently high borrowing rates, have led to an acute shortage of available homes. Many homeowners, who secured mortgages when rates were far more favorable, are staying put because they don’t want to move and take on higher mortgage rates.

This has posed a unique challenge for first-time homebuyers. Many are compelled to purchase newly built homes that don’t necessarily match their vision for their first home. But they have little choice, based on market conditions.

Here are some notable insights about new home construction and sales trends and their impact on the K&B industry from NKBA’s 2024 Kitchen & Bath Market Outlook Update:

Healthy New Home Sales Market

The undersupply of existing homes resulted in new homes gaining a historical share of total home sales in the first quarter of 2024, although this trend is starting to moderate. Based on these strong first quarter numbers, large builders are optimistic about overall single family sales and forecast 10 percent new home sales growth for 2024, up from 4 percent in 2023.

Prioritizing Affordability

Homebuilders, attuned to buyers’ concerns about affordability, are building a greater than previously anticipated share of homes that are entry-level and smaller, with more modestly sized kitchens and primary baths. These homes are value engineered to manage costs and feature lower-cost cabinets, lighting and plumbing fixtures. Builders are also offering buydowns and other incentives to make homes more affordable.

Modest Decline in New Homebuilding K&B Spend

New construction K&B spending is expected to decline slightly (-2 percent) to $108 billion in 2024, driven by several factors: a decline in starts (-6 percent), a shift towards multifamily completions for most of 2024 and a trend towards smaller kitchens and baths.

The decline in new construction is being partially offset by an increase in single family home builds, labor and material inflation, and larger kitchens in move-up homes.

New Construction Drives Most PRO Spending

According to the Market Outlook report, more than 70 percent of PRO spending on residential K&B projects – about $107 billion out of $150 billion total — will come from new construction projects. The second highest source: high spend remodels, at approximately $32 billion.

“Naturally, the K&B industry experiences the most growth when it’s firing on all cylinders, with strong activity in both new construction and remodeling,” said Bill Darcy, NKBA | KBIS Global President & CEO. “In this fiscally challenging environment, both sectors are definitely constrained. But the continued pace of new home construction remains a critical driver of K&B industry revenue, even as we wait for an economic shift that should provide a significant boost across the board.”

New Insights from Kitchen & Bath Market Outlook Update Point to Expected Growth as Economic Conditions Trend More Favorably.

By NKBA Editorial Staff

The K&B sector is still holding remarkably steady as it awaits conditions that should eventually release considerable pent-up homeowner demand for renovation projects. While eager to make home improvements, many are clearly still in a “watch and wait” mode as they eagerly anticipate more favorable borrowing rates and lower consumer prices that will fortify their savings accounts.

These are among the key findings of the NKBA’s 2024 Kitchen & Bath Market Outlook Update, a mid-year, data-informed assessment of the projected size of the residential K&B sector and forecast for the year.

According to the Market Outlook, residential K&B spending is expected to decline 2% to approximately $175 billion this year – a dollar figure that indicates the sector remains healthy, overall, based on historical standards.

Here are some of the additional key insights featured in the Market Outlook Update: 

Moderate Dip in New Construction Spending

New construction K&B spend is expected to decline 2% to $108 billion this year due to a number of factors, including a 6% decline in new housing starts. There is a decided shift toward smaller and entry-level home construction, with smaller, value-engineered kitchens and primary baths. An uptick in the share of single-family home construction, along with labor and material inflation, will partially offset declines in new construction spend.

Deferring Larger Renovations, For Now

Repair and remodeling (R&R) spend is forecast to decline 2% to $67 billion, due to the impact 18 months of inflation have had on household savings. Persistent borrowing rates continue to make it challenging for homeowners to tap into home equity, another key source of funding. High-income homeowners, who drove demand for R&R projects last year, are also being cautious. As a result, many major R&R projects are being deferred or broken into smaller jobs.

Growth in Financially Conservative DIY and Low-Spend Projects

Low-spend price point projects are projected to increase by about 10% this year, with DIY spend expected to grow 2% as consumers bide their time by undertaking simpler patch-fixes until they can free up capital for larger remodels. Declines are anticipated across mid (-5%) and high (-8%) tiers due to lack of funding for large remodels and new construction skewing towards smaller entry-level homes. PRO spending is forecast to decrease by 3%.

A Strong, Long-term Outlook

Overall, there is ample reason for optimism about the long-term outlook for the K&B market as economic conditions become more favorable. More than 1.7M homes will enter their prime remodel years over the next four years. Recent homebuyers will look to upgrade new homes they had to settle for, due to affordability constraints. And R&R projects that are now being deferred will only add to demand in the coming years. Meanwhile, homeowners are sitting on record levels of home equity they can leverage once rates become more favorable. Two key indicators point to consumers who are eager to get started: K&B project inquiries improved compared to prior quarters, as have leads for high-end projects.

“This Market Outlook Update reflects the impact of an economy that continues to temper consumer behavior,” said Bill Darcy, NKBA | KBIS Global President & CEO. “However, with the promise of reduced interest rates on the horizon – perhaps within weeks – there is a strong basis for optimism that more homeowners will finally begin to commit to the K&B projects they have been eagerly waiting to pursue.”

To unlock all of this new K&B sector data and insights, download the full Market Outlook Update here. 

Stability in The High-End Renovation Market is Driven by Homeowners Who Can Tap into Savings and Wait Out High Rates 

By NKBA Editorial Staff

One group of homeowners is likely to temper the expected short-term dip in residential kitchen and bath spending in 2024: high-income households.

According to NKBA’s 2024 Kitchen & Bath Market Outlook, the highest-income tier households are usually less rate-sensitive and, while the kitchen and bath remodel demand from this segment is expected to decline modestly in the short-term, it is likely going to be a key driver of the anticipated rebound in spending beginning later this year.

Households with an income of $160k per year or more are far more likely to fund renovations using savings (76%) than through borrowing tied to interest rates (14%). While this segment of homeowners appears to be generally less positive about their personal financial situation compared to just a year ago, projections suggest that they are becoming less cautious about undertaking major remodels. Many will finally move forward with remodeling projects in 2024 and into 2025 that they put off during the pandemic period.

In addition to more sizable savings resources, high-income households tend to have greater home equity. There are indications that more of these homeowners are preparing to access equity via HELOC accounts as rates are expected to continue falling over the course of the year.

To read more about the outlook for the kitchen and bath industry, download NKBA’s 2024 Kitchen & Bath Market Outlook report here.

NKBA’s 2024 Kitchen and Bath Market Outlook Indicates that Buyers of Quick-Move-In Homes are Eager to Make Their Own Upgrades Right Away 

By NKBA Editorial Staff

We typically think of remodels in association with aging homes and dated kitchens and baths that desperately need a refresh. But, increasingly, buyers of new homes are pursuing “instant remodels” to upgrade spaces that don’t meet their expectations.

NKBA’s 2024 Kitchen & Bath Market Outlook explores this trend as part of its broader look at projected industry trends for the coming year and how they are shaped by evolving economic factors.

The market for existing homes is tighter than it has been in some time. Rising mortgage rates have discouraged many who are locked in at lower historical rates from moving. Increasingly, prospective home buyers focused on both availability and affordability are turning to newly built homes, including entry-level homes with lower-end finishes.

Meanwhile, builders are rapidly completing new homes to meet demand. To keep costs down for themselves and consumers, more builders are opting to construct quick-move-in homes. Some have eliminated design centers in favor of pre-curated design packages that homebuyers can’t customize. The positive for home buyers in these “everything included” packages is affordability, as well as certainty about the final purchase price, costs at closing and the prevailing lending rate. The trade-off is a lack of choice about finishes and features.

For these home buyers, who perhaps spent less than budgeted for their new homes, remodeling soon after purchase can be a viable and appealing option.

“This is a uniquely challenging housing market, especially for those looking to purchase their first home,” said Bill Darcy, Global President and CEO, NKBA | KBIS. “The concept of spending less on purchase price and embarking early on upgrades on a newly built home is an attractive alternative to more expensive, highly-customized homes that can take longer to complete. We see this scenario as one important driver of the overall kitchen and bath renovation market in 2024 and beyond. ”To read more about the outlook for the kitchen and bath industry, download NKBA’s 2024 Kitchen & Bath Market Outlook report here.

Homeowners are Eager to Remodel, But Many are Putting Off Major Projects Until Anticipated Decrease in Borrowing Rates

By NKBA Editorial Staff  

NKBA’s newly-released 2024 Kitchen and Bath Market Outlook Report points to long-term resilience in the K&B market, following an anticipated short-term decline in residential spending as many homeowners who are eager to remodel wait for loan rates to become more favorable. For now, they are expected to turn to more modest DIY projects and short-term fixes. High-income households, on the other hand, are more likely to move forward with major renovations by tapping into savings.

The economy and the job market continued to outperform expectations in an elevated rate environment in the second half of 2023. Demand for new homes remains strong as homeowners with existing low-rate mortgages are holding onto their homes, causing an undersupply of existing homes for sale.

Some of the significant data points and indicators emerging from the 2024 Market Outlook Report:

• Resilient Revenues. Full year revenues for residential K&B spending are expected to reach $173 billion in 2024, a modest year-over-year decline of 3 percent. While this level of spending is below the record highs reached in 2023, it still exceeds pre-pandemic levels and suggests that the K&B industry is fundamentally resilient in the face of considerable economic challenges.
• Mixed Outlook for New Construction Spending. New construction spending, which represents more than 60 percent of K&B industry revenues, is forecasted to decline by 4 percent in 2024 to $106 billion. While small builders are challenged by high interest rates on land and construction financing, large builders are utilizing rate buydowns to fuel their optimism about single-family starts and sales in 2024. 

• Strong Remodeling Demand, Lagging Financial Means. Remodel spending is projected at $67 billion, a slight year-over-year decline of 2 percent. The majority of homeowners with mortgages below 5 percent view remodeling, rather than moving, as the most cost-effective approach right now. Yet while their appetite to remodel is strong, many of those households are deferring large projects or breaking them into smaller phases due to a decline in excess household savings, which have been eroded by inflation over the past 18 months; higher financing rates that make it less desirable to tap into home equity; and continued overall uncertainty about the economy. 

• More DIY in 2024. DIY spend is expected to grow 2 percent this year as many of these consumers will opt to undertake simpler patch-fixes until they are ready to fund larger remodels.

• Less Hesitation Among Homeowners Who Can Tap Into Savings. High-income households appear more inclined to move forward with major kitchen and bath remodeling projects in 2024. They are willing and able to tap into savings and avoid financing tied to prevailing high interest rates.

• Indicators for Optimism. Several factors inspire considerable optimism about the strong long-term outlook for K&B remodels:
  • Once mortgage rates moderate to around 5 percent, the number of existing homes for sale will return to normal levels, spurring interest from both buyers and sellers to remodel.
  • Homeowners are still sitting on record levels of home equity that they can tap into once rates stabilize, as projected.
  • Remodeling projects deferred in early 2024 will fuel demand in the coming years.
  • The number of homes in prime remodeling years will grow by 2.2 million by 2027, reaching a total of 24 million. 
  • Recent homebuyers who settled for new homes they can afford will be inclined to remodel sooner, adding upgraded finishes/features unavailable to them at time of purchase.

“All signs point to an industry that is riding out an extremely challenging economic environment and poised to benefit from a more favorable climate as the year progresses,” says Bill Darcy, Global President & CEO of NKBA | KBIS. “The long-term view is extremely positive and should inspire real optimism about the potential for significant growth in the years ahead.” 

“Homeowners are chomping at the bit to finally embark on their long-awaited kitchen and bath projects,” added Darcy. “As borrowing becomes less challenging, we’re confident they are going to do so enthusiastically, and in increasing numbers.” 

Download and read the full 2024 Kitchen & Bath Market Outlook report here.

New homes gaining share due to limited inventory of existing homes, according to recently released NKBA research.

By Elisa Fernánez-Arias

New homes have gained share of home sales this year, according to NKBA’s recently released 2023 Kitchen & Bath Market Outlook Update, which revises the forecasts made in the baseline report released in January of this year. With mortgage rates at or near a 14-year high since 2022, homeowners “locked” into lower mortgage rates as compared to current ones are reluctant to sell and move. This has led to an undersupply of existing homes for sale: in May 2023, there were three months of supply, lower than the four months required for a balanced supply. As a result, new homes have gained share of home sales this year.

New Home Sales Boosting the Construction Industry

If people are buying homes, they’re more likely to buy new construction. In May, new home sales made up 15 percent of total home sales, as compared to 10 percent in the previous year, 11 percent in 2021, 15 percent in 2020 and 9 percent in 2019. In every month this year through May, new home sales have been at their peak over five years.

This has boosted the construction industry. Nationwide, builders’ 2023 sales growth expectations have shifted from a decrease of 9 percent when we asked them in November 2022 to an increase of 7 percent forecast in April this year. Additionally, home builders surveyed in April expected to start 3 percent more homes this year, up from the decrease of 9 percent they predicted when asked in November 2022.

Builders are rapidly completing homes to meet demand and also adding to the pipeline by starting new homes at a steady pace. Completions have caught up with starts and have trended together in recent months, and the number of housing units under construction remains elevated at 1.7 million. In fact, despite improving cycle times, under construction units are at record levels — higher than they have been since the 1970s.

What This Means for the K&B Industry

In the short term, the elevated number of housing units under construction is expected to drive demand for K&B installs in new construction. New production homes are likely to be built with larger kitchens and bathrooms, according to the 2023 mid-year Market Update, while other areas will be smaller to enhance affordability.

Nevertheless, units under construction are increasingly dominated by multifamily units: as of May 2023, they amounted to about 1 million units, almost 60 percent of the total. This will temper K&B spend, since the quality of K&B products in multifamily unit construction is typically lower than in single family unit construction, making the amount of money spent on kitchens and baths in multifamily units significantly lower than in single family homes.

According to NKBA’s most recent 2023 mid-year Market Update report, the forecast for K&B new construction spending in 2023 is $111 billion. This is a decrease of 4 percent year over year, much better than the 17 percent decline in the baseline forecast reported in January.

In the longer term, lower mortgage rates will boost the housing market, to the benefit of current and new homeowners, driving up K&B spending. For example, as rates stabilize, K&B remodels can be expected to go up as homeowners tap into their record levels of home equity to complete R&R projects they had been waiting to get started on.