Since the start of 2022, as inflation has continued to rise — reducing discretionary buying power — and uncertainty has persisted on both a market and a geopolitical basis, spending growth in the home category has lagged that of broader retail. That said, there is building evidence of persistent incremental spending in the category. The overall level of spend remains well above pre-COVID-19 levels, creating continued opportunity for home-focused businesses and investors; however, they will need to carefully monitor consumer sentiment and prepare themselves for any changes in the near term.

Year-over-year growth in consumer spending has slowed across categories in recent months — to 8%-9% from 13%-16% in 2021. As overall market conditions have weakened and home investments have normalized, year-over-year expenditure growth in home categories has consistently trailed that of broader consumer categories by some four to eight percentage points. The decline has been particularly pronounced in offline channels.

Notwithstanding, aggregate spend levels in both online and offline channels remain significantly above the pre-COVID-19 baseline, which means the decline is likely more the result of high pandemic- and stimulus-driven comps. Inflation appears to be playing a role, as credit card spending with key home retailers suggests that average pricing growth is offsetting more significant declines in year-over-year transactions.

Going forward, however, the view of the home market is even less certain. Inflation and recent interest rate increases have driven up the cost of living, including home equity lines of credit and mortgage/rental payments, which is making consumers more pessimistic about their future economic circumstances. Indeed, according to the University of Michigan Surveys of Consumers, perceived buying conditions for household durables reached a 20-year low in May.

In other words, while demand remains at elevated levels today, home-focused businesses will need to keep a close eye on near-term consumer activity and be ready to make any necessary adjustments to respond to changes in consumer home spending that come as a result of these market conditions but must also recognize that the medium- and longer-term outlook appears more positive given the persistently higher household spending across many home categories.

To learn more about consumer sentiment in the home category and the strategic implications for home-focused companies, please download our analysis.

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