Home improvement contractors remain cautiously optimistic despite slowdown

Most home improvement contractors are still optimistic about the future of the market, but headwinds such as material costs and reined-in consumer spending are weighing down expectations. 

The Q3 Contractor Activity Tracker, released by The Farnsworth Group and Home Improvement Research Institute, found that home improvement contractors are less optimistic than they were a year ago. 

A majority, 57%, said that their company will grow over the next 12 months, down from 71% a year ago. Meanwhile, contractors who are optimistic about the future of the market declined from 71 to 53% year-over-year. Despite this downward trend, the future outlook has stabilized over the last two to three quarters. 

Grant Farnsworth, president at The Farnsworth Group, said that contractors are impacted by a decline in spending amid uncertainty in the economy. While luxury projects are largely unaffected, there’s been a slowdown in middle price-point projects. 

“They’re seeing homeowners kind of push and pressure them on the budgets,” Farnsworth said. “I think that’s reflected in the homeowner confidence that we see broadly in the marketplace, which is, ‘I feel okay about today. I just don’t know what’s going to happen tomorrow, and I just don’t know if it’s the best time to spend big on my home.”

NAHB’s homebuilder sentiment index ticked up to 37 in October, an improved, yet still negative score, as homebuilders are forced to use more incentives or slash prices amid lagging buyer demand. While home improvement contractors face some similar headwinds, there is generally more optimism among existing home contractors. 

“There’s some different dynamics happening in those two sectors that lead the existing home contractor to be a little bit more optimistic and a little bit more confident in their ability to get business. The homeowner can tap into some equity and maybe have more desire to work on their home than they do to go buy a new one,” Farnsworth explained. 

Cost and availability of building materials remain concerns 

Three-fourths of survey respondents said that they experienced challenges around the cost of products and materials, and nearly two-thirds said that the availability of products and materials was an issue, both unchanged from a year ago. About 40% of respondents cited tariffs as a concern. 

“I think the tariffs are just perhaps one other catalyst that’s going to put cost and availability issues forward,” Farnsworth said. 

Despite increased headwinds, home improvement contractors reported a 20% yearly increase in the number of projects bid on. Projects awarded and started are also up year-over-year. However, a roughly 5% annual decline and a more than 11% quarterly drop in backlog projects could signal a slowdown ahead.