Ongoing Decline in Construction and Design Sector Optimism

News Summary

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.

Q3 2025 Construction Sector Experiences Decline Amid Economic Uncertainty

The Q3 2025 Houzz U.S. Renovation Barometer, released by Houzz Inc. on July 23, 2025, points toward a concerning trend in optimism within the construction and design sectors. This report highlights a continued drop in business sentiment, marking the second straight quarter of declining optimism due to increased economic unease.

Since January 2025, the business outlook has significantly diminished among firms in the construction and architectural/design services, as professional sentiment weakens. Many within the industry remain hopeful for recovery in the latter half of the year, even as prevailing concerns abound.

Economic Challenges Weighing on Professionals

Factors contributing to the cautious mood include escalating costs, looming tariffs, and ongoing inflationary pressures. Businesses are grappling with these economic hurdles, which have led to a more guarded approach to future projects.

The report indicates a decrease of 1 point in the Expected Business Activity Indicator for construction businesses, now resting at 58 for Q3 2025. This is a slight decline from 59 in Q2. Notably, there was a dramatic drop of 9 points in expectations for new committed projects, contrasting with a 7-point increase in project inquiry expectations, which rose to 64 for the same period.

Backlogs and Recent Activity Indicators

Build-only remodelers and design-build firms project improved business activity, both indicating expectations at 58 points. However, the Project Backlog Indicator is at 6.1 weeks at the beginning of Q3, which is 1.5 weeks shorter than the previous year. The backlog for build-only remodelers decreased by 1.2 weeks to 6.4 weeks, while design-build remodelers saw a more significant drop of 1.9 weeks to 5.8 weeks.

Recent business activity in the sector shows a decline, with the Recent Business Activity Indicator falling to 38 from 42 in Q2. A marked 8-point decrease in new committed projects dropped the index to 34, although project inquiries remained stable at 42 points. Overall business activity remains below the neutral 50-point threshold, indicating that more businesses are experiencing downturns than improvements.

Design Sector Faces Similar Challenges

In the design sector, the Expected Business Activity Indicator experienced a drop to 58 for Q3, down 4 points from the previous quarter. This decline stems from simultaneous decreases in both project inquiries and new committed projects, with both indicators remaining at 58. Architects noted a downturn to 57 points, while interior designers saw a drop to 59 points.

Despite the negative trend, more businesses within the design sector indicate expectations for improved business activity in Q3 than in Q2. The Project Backlog Indicator for design services stands at 5.9 weeks, a modest increase of 0.2 weeks compared to a year ago. Architects reported a backlog reduction of 0.7 weeks to 6.7 weeks, whereas interior designers noted an uptick in backlog, increasing by 1.5 weeks to 4.4 weeks.

Common Concerns Affecting Futures

Recent declines in project inquiries and new committed projects pulled the Recent Business Activity Indicator for design down to 45. The primary challenges highlighted by design firms include rising product and material costs (53%), increasing labor costs (26%), and difficulties in maintaining profit margins (23%).

Alarmingly, 93% of residential construction professionals and 94% of design professionals feel that market shifts will negatively impact their businesses in Q3. Significant concerns surround economic uncertainties, including tariffs affecting 48% of construction professionals and 59% of design professionals, alongside inflation concerns affecting 42% of construction and 46% of design experts.

Labor shortages also loom large, projected to remain moderate to severe, especially in critical trades like general labor (59% in construction, 48% in design) and finish carpentry (45% in construction, 39% in design). A majority of professionals express concern over tariffs affecting essential materials like lumber and plywood, with 66% of construction professionals and 68% of design professionals marking this as a top worry.

The data presented in this report reflects responses from over 900 home improvement firms surveyed between June 14 and July 1, 2025. As the Houzz community encompasses over 3 million remodeling and design professionals and 70 million homeowners, these insights hold significant weight within the industry.

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Additional Resources

• Hardware Retailing: Houzz Reports Softer Q2 Expectations
• Wikipedia: Construction
• Kitchen & Bath Design: 2025 Optimism Blunted
• Google Search: Construction Industry Trends
• House Beautiful: Tariff-Proof Home Renovations
• Encyclopedia Britannica: Interior Design
• LBM Journal: Construction Labor Shortage Improving
• Google News: Design Sector Trends