Construction and Design Businesses’ Optimism Wanes Following Mixed Q1 Performance

Houzz Inc., a leading platform for home remodeling and design, has released the Q2 2025 Houzz US Renovation Barometer. The report found that businesses across the construction sector and the architecture and design services sector (hereafter referred to as “design”) have tempered their optimism about activity in the second quarter of the year.

This follows a significant dip in Q1 performance among the construction sector while the design sector’s activity remained stable. Expectations are also clouded by concerns over the potential impact that tariffs and other economic factors will have on their businesses.   

Moderating Expectations

“Optimism continues, yet residential construction and design businesses are moderating expectations amid mixed Q1 activity and economic uncertainty," said Marine Sargsyan, Houzz staff economist. "This tempered outlook is unsurprising, as firms continue to navigate challenges including rising material costs, cautious client spending and persistent labor shortages. In response, many firms are proactively adjusting procurement strategies and selectively stockpiling materials in preparation for anticipated tariff-driven price hikes, especially on lumber, steel and cabinetry.”

Q2 2025 Construction Sector Barometer

• The Expected Business Activity Indicator for construction businesses related to project inquiries and new committed projects decreased 6 points to 59 for Q2 (from 65 for Q1). This is largely driven by a 12-point decline in expectations for project inquiries in Q2. Expectations for new committed projects inched down to 61 for Q2 (from 62 for Q1). While build-only remodelers expect an uptick in Q2 business activity, with the indicator reaching 68, design-build firms are less bullish at 49 (down from 66).  

• The Project Backlog Indicator is 6.4 weeks in the beginning of Q2, which is 0.1 weeks shorter than a year ago. Build-only remodelers report a decrease of 2 weeks to 4.8 weeks, while design-build remodelers report a 1.8 week increase in wait times at 8 weeks.

• The Recent Business Activity Indicator related to project inquiries and new committed projects dropped to 42, down 12 points from the previous quarter, indicating slowdowns in Q1 business activity compared with Q4 2024. This is driven by an 18-point drop in project inquiries to 42 in Q1, relative to the previous quarter. New committed projects decreased 5 points to 43. The recent business indicator dropped to 39 for build-only remodelers and to 46 for design-build remodelers in Q1, as more businesses reported a decline in business activity than those reporting improvements. 

Q2 2025 Architectural and Design Services Sector Barometer

• The Expected Business Activity Indicator related to project inquiries and new committed projects declined to 62 for Q2 2025 (down 6 points from Q1) for the architectural and design services sector. This is driven by a 4-point decline in expectations for project inquiries and a 7-point drop in expectations for new committed projects (62 each). While the indicators dipped 6 points for architects (to 59) and 5 points for interior designers (to 67), more businesses expect an improvement in business activity in Q2, compared to Q1 than those expecting declines. 

• The Project Backlog Indicator is 5.7 weeks in the beginning of Q2, consistent with last year’s wait times (5.6 weeks in Q2 2024). Both architects and interior designers each reported 0.1 week increase in wait times compared with the previous year. 

• The Recent Business Activity Indicator related to project inquiries and new committed projects increased to 59 in Q1 (versus 58 in Q4 2024). This slight increase is driven by an uptick in both project inquiries and new committed projects in Q1, each increasing by 1 point to 57 and 60, respectively. The indicator is down 2 points for architects (59) and up 5 points for interior designers (58). Despite the minor decline reported by architects, the overall indicator is above the 50-point line, suggesting widespread improvements in business activity in Q1 compared to Q4 2024. 

Houzz expanded the Q2 2025 Houzz US Renovation Barometer survey to learn how pros expect economic factors–such as new tariffs, rising interest rates and labor shortages–to impact their businesses and the industry at large. Findings (as reported by each industry sector) include: 

• Bracing for impact: More than 9 in 10 residential construction and design professionals anticipate a negative impact on their business in Q2 due to market shifts (95% construction, 92% design). Key factors include tariffs (45% construction, 57% design), increased costs of products and materials (50% construction, 53% design), high interest rates (27% construction, 28% design) and clients delaying projects (26%, construction, 27% design).

• Tariff-related challenges: Businesses across both sectors agree that tariffs will most heavily impact input costs (75% construction, 66% design), supply chain disruptions (both 53%) and reduced client budgets (both 50%). More designers anticipate a reduced availability or selection of products or materials (47%) than construction professionals (32%).

• Materials anticipated to be impacted: Pros are most concerned about tariffs on lumber or plywood (83% construction, 80% design), steel (57% construction, 63% design), flooring (46% construction, 52% design) and aluminum (46% construction, 50% design).

• Products to watch: Businesses in the design sector anticipate tariffs to impact appliances (65%), cabinetry (58%), lighting fixtures (58%), indoor furniture (58%) and outdoor furniture (48%). Construction businesses are concerned about cabinetry (66%), appliances (60%), plumbing fixtures (58%), lighting fixtures (53%) and windows (44%).

• Mitigation strategies vary: The majority of businesses across sectors have a mitigation strategy in place (79% construction, 67% design). They’re most likely to pass increased costs on to their clients (68% construction, 48% design). Meanwhile, construction pros are more likely to absorb cost increases (21%) and stockpile materials (19%) compared with designers (8% and 5%, respectively). 

• Labor shortages: Both sectors anticipate moderate to severe labor shortages, particularly among general laborers (45% construction, 59% design) and finish carpenters (44% construction, 51% design). Shortages of framers (33% construction, 31% design) and plumbers (28% construction, 23% design) are also notable concerns.

Methodology

The quarterly Houzz US Renovation Barometer provides timely insights into the residential renovation industry, including expectations, project backlogs and recent activity among businesses in the US construction and architectural and design services sectors. Scores for each component are computed as a seasonally adjusted diffusion indices on a scale of 0 to 100, with index values over 50 indicating that a greater proportion of firms reported quarter-over-quarter increases than those reporting decreases.

Detailed methodology and underlying quarterly indices for the construction sector and the architectural and design services sector, and other information on market conditions, can be found on houzz.com/research. The Q2 2025 Barometer was fielded March 14 through March 28th, 2025 and garnered responses from over 1,000 home improvement firms on Houzz. n=1,136.

The Houzz community includes more than 3 million home remodeling and design professionals including architects, interior designers, general contractors and design-build firms. Houzz Pro provides professionals and their clients with all-in-one project management and design software, including CRM, estimates, takeoffs and more.