4 key trends shaping consumer demand
According to Zonda's building products expert Todd Tomalak, higher prices are on the way. And it's about more than just tariffs.
"We think the industry should be prepared for an increase of about 9.3% to 'sticks and bricks,' taking into account not only direct costs from tariffs, but also baseline inflation and knock-on costs from domestic manufacturers," he says. "With that, we looked at trends that we believe will impact U.S. consumers, what compromises they'll consider and ultimately what we think consumers will buy in 2025."
What trends will impact consumer demand to increased product costs? Zonda shares four big trends that will shape the industry for the duration of 2025.
1. Reduced demand with a price hike will be distributed unevenly.
- Over a ~6 quarter period, with peak impact felt 6-9 months after the price shock.
- Impact skewed by income: lower incomes reduce demand far more than higher.
2. There will be a simultaneous hit to real income.
- Each 1% swing in real incomes historically skewed home improvement spending by several percentage points.
- Since tariffs are broadly based, they impact overall consumer wallet more than targeted 'industry only' duties.
3. Some households will reduce spending by scaling down projects.
- ~20% of midrange remodels 'lost' due to tariff price shock, recouped as small maintenance and repair projects (<$5k).
- 27% of 'big project' remodels lost, recouped or scaled down to 'mid-range remodels' (e.g. updating outdated appliances vs a larger kitchen update).
4. Consumers are also more price-sensitive since mid-2024, due to depleted pandemic-era savings, higher debt service payments and mortgage rate increases.
Homeowners have finite money, and rising costs in one product can spill over into reduced spending on other products, even if those other products have no direct tariff exposure.
If homeowners prioritize one product with rising costs as more important than other products, they may cut back spending on less essential categories.
Zonda's team conducted an analysis of this phenomenon using proprietary data, and the company believes it has the first definitive analysis in the industry on recent homebuyer substitutions amid rising costs.
Zonda analyzed relative tradeoffs of products selected as costs changed 2018-24, to learn relative differences in price sensitivities.
So, which categories are homeowners most willing to prioritize despite rising costs?
There are huge differences in price sensitivity on selected upgrades in the home.
- Window and door upgrades are most price sensitive (10% higher payments drive -80% less upgrade selection) (Note: Increased costs related to windows and doors have yet to be passed along to consumers by manufacturers).
- Flooring and electrical are less sensitive (10% higher payments drive only -8-9% less product upgrades).
Finally, brands are even more sensitive than products, because individual brands can be substituted for similar experiences at varied costs. Rising costs due to tariffs are most likely to cause major swings between what brands consumer select.
Learn more about Zonda's Building Products Outlook.
