Home renovation was the most important stay-at home play during the pandemic, just behind Netflix.

Homeowners have increased their living spaces by expanding and renovating at an unprecedented rate over the last two years, from new homes offices to larger decks to basement gyms. The trend is slowing. 

According to Harvard’s Joint Center for Housing, after big jumps in first half, renovation spending should increase in the third quarter before slowing down to more sustainable growth. 

“The rising costs of labor and construction materials, difficulty retaining contractors, and climbing interest rates could discourage owners from undertaking new or larger remodeling projects,” said Abbe Will, associate project director of the Remodeling Futures Program and HJCH.

Spending could still reach $430billion by the end of the year. This is almost 20% more than the $357 billion spent last year. In the fourth quarter, spending is projected to increase by 17% over last year. Before the pandemic, the annual gains in spending were around 1% to 33%. 

Retailers of home renovations, which saw significant gains last year are now suffering from inflation. That could increase the problem. Names like Masco, Sherwin Williams, Lowe’s Home DepotThey are down all year to-date and more so than other markets.

Sherwin Williams has reduced its full-year outlook in its most recent earnings release citing supply chain challenges that will likely continue. John Morikis, CEO of Sherwin Williams stated on an analyst conference call that “We will continue implementing pricing actions as necessary to offset higher costs.”

Loop Capital Markets’ senior analyst Laura Champine downgraded Lowe’s last fall and Home Depot this spring. The decision was made on the basis of fundamentals in home remodeling. Champine sees that unfold now.

Champine said, “We are not going get the stimulus that we had last year, the year before, and two years ago, everyone had to locate their home office and their school, and that’sn’t going to happen again” in an interview with CNBC’s Power Lunch on Friday.

 “Those big remodelings are what drives the bus and that’s where the profits are. There will still be Home Depot and Lowes employees who buy duct tape. Lowes staff also need light bulbs. But if you aren’t going to Home Depot to remodel your kitchen or bath, and not replacing your flooring, the situation is not good. That’s an indicator of the stock market sentiment.

Lowes’s guidance for the current quarter was less than anticipated. Dave Denton (chief financial officer) stated that although the company expects to be ahead of its competitors, it is also preparing for “modest sector withdrawal in 2022.”

According to the National Association of Home Builders, there were gains in builders’ confidence in remodeling markets in the fourth quarter of 2013. But there is a catch.

Robert Dietz (NAHB Chief Economist) stated, “It’s important to remember that survey data were collected late December/early January and don’t fully capture recent interest rate rises.” NAHB anticipates that remodeling activity will continue to increase in 2022. However, it won’t grow as quickly as in 2021.