The housing market and remodeling industry are closely intertwined, with shifts in one often impacting the other. As we look to 2025, several key factors are primed to shape the economic landscape for both sectors. Following is a look at economic trends and predictions based on data from leading industry organizations, including The National Association of Home Builders (NAHB), Remodeling Futures program at the Joint Center for Housing Studies at Harvard, and Houzz’s latest renovation barometer.

Key predictions

Modest growth in remodeling spending: After a slight dip in 2024, remodeling spending is expected to rebound with moderate growth in 2025. The Remodeling Futures program at Harvard’s Joint Center for Housing Studies predicts annual spending on home improvements and repairs to reach $477 billion by the third quarter of 2025, a 1.2% increase from the previous year. This growth is attributed to several factors, including a stabilizing housing market, rising home equity, and the ongoing need for home upgrades and repairs.

“A continued thaw in new home construction and sales of existing homes bodes well for an uptick in residential improvement and repairs next year,” says Carlos Martin, Director of the Remodeling Futures Program at the Center. “Additionally, stronger gains in home values and thus home equity levels should boost both discretionary and ‘need-to-do’ replacement projects for owners staying in place.”

Impact of housing market dynamics: The performance of the housing market will play a crucial role in shaping remodeling trends. NAHB forecasts suggest a gradual recovery in the housing market, with moderate increases in new home construction and existing home sales.

Sales of newly built, single-family homes in September increased 4.1% to a 738,000 seasonally adjusted annual rate from a downwardly revised August number, according to newly released data from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. The pace of new home sales in September is up 6.3% compared to a year earlier.

“Despite challenging affordability conditions, home builder confidence edged higher in October as they anticipate that mortgage rates will gradually, in an uneven manner, moderate in the coming months,” said Carl Harris, chairman of the National Association of Home Builders (NAHB) and a custom home builder from Wichita, Kan. “There is a significant need for additional housing supply, as many prospective home buyers are entering the market.”

This positive trajectory is expected to support growth in the remodeling sector as homeowners gain confidence and invest in their properties.

Rebound for architectural and design firms: The Q4 2024 Houzz U.S. Renovation Barometer found decreases in Q3 business activity indicators compared with Q2 among home remodeling and design professionals. Despite this decline, business performance was better among architectural and design businesses, for which the indicator remains above the 50-point line (index values over 50 indicate that a greater proportion of firms reported quarter-over-quarter increases). On the other hand, businesses in the construction sector reported a decline in business activity compared with Q2, dipping below the 50-point line. However, businesses across all sectors remain optimistic about activity in the coming quarter.

Challenges and opportunities

Economic uncertainty: Lingering economic uncertainty and inflationary pressures could impact consumer spending and create challenges for the remodeling industry. Businesses need to remain adaptable and responsive to changing market conditions. Participants in the Closets State of the Industry 2025 survey found that 40% were concerned about inflation and the economy.

Labor shortages: The ongoing labor shortage in the construction and remodeling trades still poses a significant challenge. Attracting and retaining skilled workers will be crucial for meeting demand and ensuring project timelines. Approximately 34% of Closets State of the Industry 2025 survey participants were concerned about labor shortages and recruitment.

Supply chain disruptions: While supply chain issues have shown improvement, potential disruptions remain a concern, according to 16% of Closets State of the Industry 2025 participants. According to published reports, the threat of a strike at East Coast ports in 2025 remains due to unresolved issues, including automation and pay. In October 2024, the International Longshoremen’s Association and shipping companies agreed to extend their master contract until January 15, 2025, to continue negotiations. Businesses should maintain strong relationships with suppliers and explore alternative sourcing options to mitigate risks.

Overall, the economic outlook for 2025 suggests moderate growth in the remodeling sector, driven by a combination of factors, including a recovering housing market, rising home equity as inflation eases, and the ongoing need for home improvements and repairs. Businesses that can adapt to evolving consumer preferences, embrace digital tools, and navigate potential challenges will be well-positioned for success in the coming year.