The current state of a construction site symbolizes the ongoing decline in sector optimism.
The latest Q3 Houzz U.S. Renovation Barometer reveals a continued decline in optimism among construction and design professionals. Economic challenges including rising costs and potential tariffs create a cautious outlook for the upcoming quarter. Business activity indicators show a downturn in project inquiries and new engagements, while concerns about labor shortages and market shifts heighten among industry professionals. Despite the challenges, some firms remain hopeful about performance improvement. The data reflects a pressing need for both sectors to adapt to evolving economic conditions.
The latest findings from the Q3 2025 Houzz U.S. Renovation Barometer reveal a continued decline in optimism within the construction and design sectors. Released on July 23, 2025, the report points to a significant drop in business sentiment, marking the second consecutive quarter of diminishing optimism.
A host of economic challenges such as rising costs, potential tariffs, and inflation are causing many professionals in these fields to approach the upcoming quarter with caution. Despite the current concerns, a number of firms remain optimistic about improved performance in Q3.
The Expected Business Activity Indicator for construction businesses, which measures project inquiries and new project engagements, fell by one point to 58 for Q3, down from 59 the previous quarter. In a notable shift, expectations for new committed projects have declined considerably by 9 points.
However, on a more positive note, project inquiry expectations saw an uptick, increasing by 7 points to a level of 64 for Q3. Both build-only remodelers and design-build firms are optimistic, reporting expected business activity indicators of 58 points.
The Project Backlog Indicator sits at 6.1 weeks at the beginning of Q3, which reflects a 1.5 week reduction compared to the prior year. Build-only remodelers have less backlog, showing a decrease of 1.2 weeks to 6.4 weeks, while design-build remodelers experienced a drop of 1.9 weeks, now standing at 5.8 weeks.
As for the Recent Business Activity Indicator, this saw a decline to 38, down from 42 in Q2. The drop was largely attributed to an 8-point decrease in new committed projects, which now total 34. Meanwhile, project inquiries remained stable with an indicator score of 42 points.
Overall, the business activity indicators remain below the critical 50-point mark, signaling that more companies are reporting declines than improvements. A range of challenges faced by firms include increased product and material costs reported by 45% of businesses, higher labor costs impacting 32% of firms, and difficulties in maintaining profit margins faced by 26% of respondents.
Within the design sector, architects saw a decline in expectations, reporting a score of 57 points, while interior designers fared slightly better with a score of 59 points. Interestingly, more businesses in this sector are anticipating improved activity compared to the previous quarter.
The Project Backlog Indicator for design services stands at 5.9 weeks, slightly longer than a year ago. Architects reported a decrease in backlog of 0.7 weeks to 6.7 weeks, whereas interior designers reported an increase of 1.5 weeks, bringing their total to 4.4 weeks.
The Recent Business Activity Indicator for the design industry has declined to 45 in Q2, driven by drops in both project inquiries and new committed projects. Top challenges for the design sector include escalating product and material prices, which concern 53% of firms, increased labor costs affecting 26%, and maintaining profit margins cited by 23% of respondents.
A concerning 93% of residential construction professionals and 94% of design professionals project that market shifts will negatively impact their business in Q3. Major economic factors causing concern include tariffs—impacting 48% of construction firms and 59% of design firms—and inflation affecting 42% of construction firms and 46% of design firms.
Labor shortages are expected to remain a pressing issue, particularly for general laborers and finish carpenters. A substantial 66% of construction professionals are specifically worried about tariffs affecting lumber and plywood, while 68% of design professionals share similar worries.
Data for this report was collected from over 900 home improvement firms between June 14 and July 1, 2025. The Houzz community encompasses a vast network of over 3 million remodeling and design professionals and 70 million homeowners. As economic uncertainties continue to shape expectations, both sectors must navigate these tough waters.
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