Houzz has released its State of the Industry report.

The report provides an overview of 2015 and an outlook for this year for residential renovation and design businesses based on data reported by more than 3,500 professionals in the Houzz community. The vast majority of residential businesses are bullish, expecting both revenue and profit growth to continue this year.

Additionally, Houzz released the Q4 2015 Houzz Renovation Barometer, showing continued confidence in year-over-year and quarter-over-quarter gains in business activity among renovation industry professionals, and an optimistic outlook for the first three months.

Home renovation and design businesses on Houzz anticipate more widespread revenue and profit growth in 2016 than they experienced in 2015, according to the findings of the State of the Industry report. Half or more of businesses surveyed expect revenue growth rates of 10 percent or more (48-59% of businesses, depending on industry sector), with over one-fifth expecting annual rates of 15 percent or more (22-35% of businesses). This is roughly in line with the growth experienced in 2015 by all industry groups with the exception of architects, who expect more conservative growth rates in 2016 relative to 2015. In order to sustain this substantial growth, half or more firms plan to further invest in marketing (50-70% of firms across industry groups). Over a third plan to bring in larger budget projects (39-54% of firms), increase their prices (37-49% of firms) and/or improve customer experience (35-47% of firms).

“All of our Houzz industry research to-date points to an exceptional two-year run for the home renovation and design industry, leading to a healthy market in 2016,” said Nino Sitchinava, principal economist at Houzz. “2016 should bring more moderate but steady growth, driven by solid consumer demand but hampered by labor shortages. We expect to see businesses increasing their fees to offset rising labor costs and years of low margins, as well as focusing efforts on big-ticket projects while expanding their staff.”

According to the report, 2015 was a year of revenue growth for nearly three-quarters (67-76%) of residential renovation and design companies on Houzz, mirroring 2014 rates. Revenue growth rates were more moderate in 2015 than in 2014, however 30-37% of businesses reported high double-digit revenue growth (more than 15%) in 2015, compared to 34-45% or more in 2014. 

Similarly, while over half of firms experienced an increase in profits in 2015 relative to 2014, the proportion of companies that experienced this growth is approximately 5 percentage points lower than in 2014 across nearly all professional sectors. Additionally, there is a gap of 7-14 percentage points between the proportion of firms reporting revenue growth and those reporting profit growth in 2015 for nearly all industry groups. Not coincidently, over half of the firms in each category reported that the cost of doing business increased in 2015, with those in the construction sector reporting the most widespread cost increases (76% among general contractors, 74% among building and renovation specialty companies, and 70% among design-build firms).

Despite overall industry growth in 2015 and positive expectations for 2016, residential renovation and design businesses cite the following challenges: managing consumer concerns and expectations, rising business costs and staffing shortages.

The Q4 2015 Barometer, which tracks industry optimism in year-over-year and quarter-over-quarter market improvements, posted high year-over-year readings of 72 or higher across industry groups. The Barometer also exceeded 70 points for all four quarters of 2015, further evidence in industry growth in 2015 relative to 2014. In terms of quarter-over-quarter readings, the Barometer posted scores of 58 or higher in Q4 2015. These scores are eight to 11% lower than Q3 2015 scores for all industry groups except architects and interior designers, whose scores only declined by four and one percent. The greater the index value relative to 50, the greater the proportion of firms reporting increases in quarterly business activity than those reporting decreases.

The dip in the quarter-over-quarter Q4 2015 scores reflects the continued seasonal cooling of market activity, in line with scores for the same quarter in 2014. This seasonal slowdown was felt across regions and industry sectors in Q4 2015, though to a lesser extent for firms in the South. Given the rainier weather conditions in the West in Q4 2015 versus Q4 2014, it is not surprising that Western renovation firms report weaker confidence in quarter-over-quarter gains compared to the same period in 2014. Firms across regions and industry groups are optimistic about Q1 2016, however, with quarter-over-quarter scores of 71 or higher.

For more information, visit houzz.com.