Residential Backlogs Sustain Near-Term Homeowner Demand

Residential window and door manufacturer backlogs have remained elevated since late 2021—a consequence of prior strong homeowner demand for window and door replacement confronting supply chain snarls.

Based on recent traffic indicators, window and door demand from homeowners began softening last fall and is expected to cool further following the rapid increases in interest rates and inflation.

Flat to declining conditions

We anticipate Remove & Replace spending on building products to be flat and to decline slightly on a year-over-year basis in 2023, with important differences by product category. Moderating growth comes on the heels of strong year-over-year increases over the past two years.

For 2023, we anticipate the strongest declines in demand from big-ticket remodeling projects as affordability concerns, higher interest rates and economic uncertainty are expected to weigh on homeowners’ decisions to undertake larger projects.

Window and door backlogs and lead times remain elevated at this point: our monthly survey of LBM dealers has consistently highlighted windows as being the product primarily responsible for project delays.

Consistent with this, our quarterly survey of remodeling firms and contractors also shows backlogs remaining elevated, with contractors citing projects already booked out to around five months. These remodelers did note a slowing in new project inquiries. The qualitative commentary we hear from contractors and building products dealers indicates new projects tend to be smaller in size, consistent with our thesis of a decline in bigger R&R projects in 2023. We believe these extended project backlogs will insulate R&R activity from short-term dips in demand, which is positive for the industry.

Replacement versus discretionary

We see a clear differentiation in R&R between spending on replacement products and projects versus discretionary projects. During the previous downcycle from 2007 to 2011, homeowner spending per discretionary project fell -32 percent, while spending per replacement project fell only -9 percent. This cycle, the weakening discretionary remodeling project segment makes up 30 percent of aggregate repair and remodeling spending, while the more stable replacement project segment makes up 48 percent.

From an R&R perspective, the majority of window and door projects are replacement projects versus discretionary remodeling. Window and door manufacturers and dealers can capitalize on this opportunity with a targeted focus on areas more susceptible to these repair-type projects.

A favorable long-term view

Longer-term, we see overall structural strength in the R&R market, underpinned by:

• 24 million homes reaching “prime remodeling years” by 2027, likely leading to increased project activity to repair or upgrade homes. We define homes in these prime remodeling years as homes 20 to 39 years old, which data shows is the sweet spot for window and door replacement projects.
• 87 percent of all mortgage borrowers are “locked in” at rates below 5 percent, discouraging the purchase of a new home.
• The average homeowner has an all-time high of $348,000 of equity in their home. 

Additionally, we estimate a 1.7-million-unit undersupply of homes in the U.S. and that aging millennials will drive 12.7 million net new households between 2020 and 2030. 

These longer-term structural factors are tailwinds to the window and door industry following near-term cyclical declines from affordability concerns this year.