Kitchen & Bath Design News

JAN 2019

Kitchen & Bath Design News is the industry's leading business, design and product resource for the kitchen and bath trade.

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Economists and dealers agree that the outlook for kitchen and bath activity looks strong, but change is afoot, driven by higher interest rates, flattening home prices and a huge demographic shift. BY PATRICK L. O'TOOLE Subtle Shifts Ahead sk remodelers or kitchen and bath designers and dealers about current business conditions and they're likely to be very upbeat. The flow of leads for new business is strong. Backlogs are growing. Home prices have risen to a point where people are feeling comfortable investing more in upgrades. In short, the kitchen and bath design indus- try is firing on all cylinders. But that does not mean that kitchen and bath pros are worry-free. Prices for kitchen and bath appliances, fixtures, countertops and cabinets are all trending upward. And it's also getting more expensive to keep skilled labor happy, so labor costs are rising, too. Those rising costs are getting passed along to clients in the form of higher prices. So far, clients are accepting those increases without too much push-back. But there are limits to how long clients will agree to higher prices. According to economists who study housing and remodeling, the outlook for kitchen and bath design and construction activity is robust for 2019 and beyond. But unlike the past few years, it is not likely to be a period of fast, nearly double-dig- it growth. The high-water mark for existing-home sales will likely have been 2017, says Robert Dietz, chief economist and senior v.p. of the National Association of Home Builders, noting the strong correlation between existing-home sales and remodeling. Todd Tomalak, a forecaster with John Burns Real Estate Consulting, agrees. He sees a six percent compound annual growth rate (CAGR) for the remodeling market as a whole, starting in 2019. That number includes both owner and renter remodeling activity as well as big and small project activity combined with disaster repairs. But because the profes- sional kitchen and bath design market occupies a spot in the market that is a combination of owner-occupied and big proj- ect activity, the outlook for that important sector is less robust at one percent CAGR, says Tomalak. Kermit Baker, chief economist for the American Institute of Architects and Harvard University's Remodeling Futures Program, is slightly less bullish than the six percent growth rate suggested by Tomalak. The remodeling market's growth rate will likely be in the "mid-sin- gle digits" in 2019, Baker says. And the Burns Residential Repair and Remodel Spending ■ Small Project Discretionary ■ Big Project Discretionary ■ Disaster Repairs The remodeling market in 2018 is red hot, and it is expected to stay that way for the next few years. The underlying factors will switch from renters to owners and from bigger projects to smaller projects. (Note: Includes labor and materials) Source: John Burns Real Estate Consulting, LLC; U.S. Census, CTBUH A Kermit Baker Todd Tomalak Robert Dietz 38 Kitchen & Bath Design News • January 2019 2019 INDUSTRY FORECAST $284.9 $270.5 $233.1 $215.0 $247.1 $237.3 $240.3 $265.4 $282.4 $303.8 $344.6 $372.7 $379.1 $396.2 $393.4 '07 $400 $350 $300 $250 $200 $150 $100 $50 $0 Remodeling Spending in Billions of Dollars '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18P '19P '20P '21P

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