HOME SERVICE ECONOMIC REPORT:
May 2023Download Report
Economic recessions and slowdowns can affect various industries differently. Looking back at Home Service businesses during the dot-com crash in 2001, the Great Financial Crisis of 2007/08, and economic slowdowns in 2011 and 2015/16, we see varied impacts.
Using historical data from the American Housing Survey (AHS) and Harvard University’s Joint Center for Housing Studies (JCHS), we observe that the $500 billion home remodeling industry divides into maintenance (20%) and improvement (80%). Maintenance includes necessary jobs like plumbing or HVAC repair, while improvement encompasses upgrades to property, often professionally done.
Observing these expenditures over time, maintenance spending remains stable regardless of economic climate, while improvement spending shows higher growth but more volatility. This volatility was most evident during the 2007-2009 financial crisis.
Dividing improvement spending into replacement, discretionary, and other categories, we see different trends. Replacement spending remains resilient in downturns, likely due to the aging U.S. housing stock. Discretionary spending, being optional, is more sensitive to economic shifts, while other, tied to disaster repairs, is inherently volatile.
These trends inform potential scenarios for future economic slowdowns. In a minor slowdown, replacement and discretionary spending may slow but should stay positive. In a minor recession, growth may slow, but overall growth should stay positive. In a major recession, all sectors may contract, but replacement spending might prove more resilient. Understanding these scenarios helps businesses prepare for different economic situations.
New work scheduled overall is down in Q1 2023 as the general economic slowdown is impacting home services businesses, although less than other parts of the economy. Median revenue growth is slowing, but still grew by approximately 3% in March relative to last year. This is due to increased average invoice sizes compared to last year, reflecting inflation.
As a reminder, we’re comparing growth to Q1 last year, which was a very strong quarter for Home Service professionals with median revenues growing 20-30% year-over-year during that time. On a two-year compound annual growth rate (CAGR), median revenue grew between 10-20% in Q1.
Median Revenue YoY
In this section, we explore the recent trends in new work scheduled and median revenue growth across four key segments: Green, Cleaning, Contracting, and Construction.
The Green segment includes lawn care, landscaping, and other related outdoor services. Despite new work scheduled showing a decline of about 5% (except for February, which actually grew slightly) compared to the same period last year, revenue growth remained positive. This resilience highlights the steady demand for these services, with revenue growth for Q1 2023 clocking in around 5–10%. This bodes well for this segment as we head into the busy summer season.
Cleaning services encapsulates residential and commercial cleaning, carpet cleaning, junk removal, and other similar services. The segment started the year with a slight uptick in new work scheduled in January, but this was followed by declines of 6% and 12% in February and March, respectively. Despite the dip in new work, median revenue growth stayed positive. This reflects the ability of business owners to increase prices and maintain margins.
The Contracting segment includes electrical, handiwork, HVAC, plumbing, and other non-construction services. Much like the overall Home Service trend, the demand for Contracting services saw a decline of about 5%. However, businesses in this segment were able to leverage increased pricing power, leading to year-over-year revenue growth of 12% in January before flattening in February and March.
Construction services includes businesses in residential and commercial construction, remodeling, and related industries. Construction and remodeling businesses are most likely to be impacted by the slowdown in the housing market as existing home sales dropped 18% and new homes dropped 3.4% in March relative to last year. On a positive note, March new sales were 9.6% higher relative to February as the market does show signs of picking up. Construction businesses saw an approximately 20% decrease in new work scheduled in Q1 2023 compared to the same period last year. Despite this, businesses were able to grow revenues in the first quarter year-over-year.
New Work Scheduled YoY — Construction
Median Revenue YoY — Construction
These trends underline the resilient nature of Home Service industries, even in the face of fluctuating demand. Businesses have shown their adaptability, leveraging increased pricing power to maintain revenue growth despite changes in new work scheduled. As we move further into 2023, it will be interesting to see how these trends develop and how businesses continue to adapt.
Navigating 2023’s evolving economic landscape, the Home Service category has displayed resilience and adaptability, despite fluctuating consumer demand. Across the segments—Green, Cleaning, Contracting, and Construction—businesses have successfully maintained revenue growth amid demand slowdowns, largely through increased pricing power in line with inflation.
The analysis of past economic slowdowns provides us with insights that can help guide expectations. For example, we can anticipate Maintenance spending to remain steady, while Improvement spending may experience more volatility. Furthermore, within the Improvement segment, Replacement spending is likely to demonstrate the most resilience.
In any economic scenario, Home Service businesses have proven their ability to adjust and maintain growth. The future outlook for the category is optimistic, demonstrating resilience and potential despite economic uncertainties.