Observers say the kitchen and bath industry is resilient, and while some stresses remain in the next few months, the outlook for 2024 is more positive.
The North American economy is healthier than many economists had predicted it would be by this point in 2023, but it still faces some challenges, particularly in the near term. Demand in the kitchen and bath sector has slowed in much of the U.S. and margins are under increasing pressure, but on a positive note, price hikes are easing and most K&B pros expect 2024 revenue to rise or remain stable; just 13 percent foresee a decline.
Most observers say the chances of a prolonged recession in the broader economy are fairly low, although a short dip is more likely next year. While the job market remains strong, home prices continue to be elevated along with mortgage interest rates.
NKBA recently released two exclusive research reports — Kitchen & Bath Market Outlook Update and the 3rd quarter Kitchen & Bath Market Index (KBMI) — that measure the health of the kitchen and bath industry and professionals’ expectations for business in the months and year ahead.
The Market Outlook Update, which in July revised forecasts released at the beginning of 2023, reports that this year should shape up better than initially expected. While spending on residential kitchen and bath products and projects is expected to decline by 5 percent to $179 billion in 2023, this is an improvement from the 14 percent decline originally forecast in January. And although this estimate is below the record highs achieved in 2022, it remains higher than pre-pandemic levels.
The update says new construction is being driven by the ongoing housing shortage and lack of existing home inventory for sale. This should result in new construction K&B spending of $111 billion this year, comfortably above the initial forecast of $96 billion.
As conventional 30-year fixed mortgage interest rates have remained higher, hovering between 7 and 8 percent, homeowners with lower rates — 80 percent of outstanding mortgages are under 5 percent — are incentivized to remodel versus selling and incurring greater debt. The updated forecast for repair/remodel spending of $68 billion is a slight uptick from the initial projection of $67 billion.
Meanwhile, the 3Q KBMI provides a more immediate snapshot of K&B professionals’ evaluations of current conditions and expectations for coming months. The KBMI rating fell to 53 out of 100, down from 55 in the 2nd quarter and from 62 in Q1. While still in positive territory — above 50 indicates growth — the rating is at its lowest since early 2020. Overall K&B activity slowed in most of the country, largely attributed to higher interest rates and shaky consumer confidence. While product and material prices are still inflated, it appears that costs are fairly stable — not rising — and supply chain challenges have just about disappeared.
Despite the Q3 cooldown, industry professionals have a more positive outlook heading into 2024. Most pros expect sales to be more or less steady in Q4, with many pursuing larger, higher-margin projects. Job deferrals, which help fuel future demand, are more common than cancellations. And 44 percent of execs across all K&B segments expect revenue to increase in 2024, with inventories under control.
The KBMI, Market Outlook and other exclusive NKBA studies may be purchased through NKBA Research, or are included in the cost of membership for NKBA members and Global Connect members.
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