© 2017 Houzz Inc.

Q3 2017 HOUZZ RENOVATION BAROMETER October 2017

© 2017 Houzz Inc. 2

Big Ideas

U.S. Houzz Renovation Barometer | October 2017

INDUSTRY CONFIDENCE HIGH AND HOLDING STEADY The Houzz Renovation Barometer, which tracks industry optimism in market conditions, posted Q3 readings exceeding 50 points across all industry groups (62 to 72 out of 100), meaning that more firms reported market activity increasing rather than decreasing quarter over quarter. Quarter-over-quarter readings for Q3 2017 are in line with Q3 2016 scores. REMODELERS’ PROJECT BACKLOGS GROW The Houzz Renovation Barometer Backlog Index shows a project backlog of 4.5 to 7.7 weeks, on average, across all sectors at the start of Q4 2017, reflecting significant wait times before companies can take on new projects. General contractors (GCs), remodelers, and design-build companies have the longest backlogs (7.1 and 7.7 weeks, on average, respectively). These backlogs increased relative to the start of Q3 2017 (7.0 and 7.4 weeks, respectively). LABOR SHORTAGES MEAN HIGHER COSTS Labor shortages continue to be widespread, as reported by 78% of GCs, remodelers, and design-build firms. Compared with last year, a greater share of companies cite the increasing cost of subcontractors (56% in Q3 2017 vs. 53% in Q3 2016) and the increasing length of projects (54% in Q3 2017 vs. 50% in Q3 2016) as a result of labor shortages. HURRICANE-HIT REGIONS SEE SHORT-TERM BUSINESS DISRUPTIONS* Within the first two weeks of making landfall in the Houston metropolitan area and on the southwestern Florida coast, hurricanes Harvey and Irma caused 28% and 42% of renovation-related businesses to suspend operations in these areas, respectively. The hurricanes exacerbated labor shortages across the regions and increased project backlogs by nearly two weeks, on average. HOMEOWNER REPAIR COSTS SKYROCKET IN HURRICANE-AFFECTED AREAS* Renovation-related companies estimate the average total cost of repairs and renovations for homeowners to be $13,000 in the areas hit hardest by Irma, and a staggering $111,000 in the areas hit hardest by Harvey. Furthermore, one in 10 companies estimate the total repair and renovation costs for homeowners from Hurricane Harvey to exceed $200,000.

*Findings about the impact of Hurricane Maria on Puerto Rico were not included due to very small sample sizes

© 2017 Houzz Inc. 3

Hurricane Impact 4-7 Current Labor Conditions 8-11 Houzz Renovation Barometer: Project Backlog 12-14 Houzz Renovation Barometer: Quarter-Over-Quarter Confidence Scores 15-18 Houzz Renovation Barometer: Year-Over-Year Confidence Scores 19-20 Methodology 21-22 Appendices 23-28

Contents

Pages Section

U.S. Houzz Renovation Barometer | October 2017

© 2017 Houzz Inc. 4

HURRICANE IMPACT

U.S. Houzz Renovation Barometer | October 2017

© 2017 Houzz Inc.

73%

68%

41%

30%

11%

5%

67%

15%

28%

28%

8%

10%

Current project/order delays

Loss of utilities

Suspended operations

Displaced employees/staff

Damage to supplies/materials

Damage to assets

5

Hurricanes Harvey and Irma hurt many renovation-related businesses in the hardest-hit areas* in the first two weeks after landfall. Loss of utilities was widespread in Irma-stricken areas (68%), likely explaining why two in five renovation-related businesses suspended their operations (41%), with most of those (65%) halting operations for a week or longer. In Houston, just over a quarter of businesses suspended operations, but for a longer period.

Short-Term Disruptions for Many Businesses

INITIAL TWO-WEEK HURRICANE IMPACT ON BUSINESS OPERATIONS, AS REPORTED BY FIRMS IN HARDEST-HIT AREAS*

SUSPENDED OPERATIONS FOR ONE OR MORE WEEKS

65% Due to

Irma

91% Due to Harvey

Harvey

Irma

*Areas hit hardest by Harvey include the Houston-Sugar Land-Baytown, TX, metro area; areas hit hardest by Irma include Cape Coral-Fort Myers, FL, Sarasota-Bradenton-Venice, FL, Tampa-St. Petersburg-Clearwater, FL, Naples-Marco Island, FL, and Punta Gorda, FL. **Findings about the impact of Hurricane Maria on Puerto Rico were not included due to very small sample sizes

U.S. Houzz Renovation Barometer | October 2017

© 2017 Houzz Inc.

38%

23%

23%

23%

20%

14%

11%

9%

38%

46%

31%

15%

15%

15%

18%

15%

Shortage of subcontractors

Cost-concerned consumers

Managing consumer expectations

Shortage of products and materials

Damage to local infrastructure

Weak/uncertain local economy

Difficulty hiring/being understaffed

Increased cost of doing business

6

While the hurricanes contributed to the ongoing shortages of subcontractors in both regions, companies on the southwestern Florida coast report more widespread shortages of products and materials, and companies in the Houston area report greater difficulties with managing pressures from their customers. However, 78% and 92% of affected companies in Florida and Texas, respectively, expect to at least fully recover financially over the next 12 months.

Businesses Face Challenges but Expect to Recover

TOP BUSINESS CHALLENGES (LIMITED TO 3) EXACERBATED BY THE HURRICANES, AS REPORTED BY FIRMS IN HARDEST-HIT AREAS*

12-Month Expected Hurricane Impact on Business

Irma Harvey

Net financial loss 22% 8%

Neutral Impact 33% 26%

Net financial gain 45% 66%

Harvey

Irma

U.S. Houzz Renovation Barometer | October 2017

*Areas hit hardest by Harvey include the Houston-Sugar Land-Baytown, TX, metro area; areas hit hardest by Irma include Cape Coral-Fort Myers, FL, Sarasota-Bradenton-Venice, FL, Tampa-St. Petersburg-Clearwater, FL, Naples-Marco Island, FL, and Punta Gorda, FL. **Findings about the impact of Hurricane Maria on Puerto Rico were not included due to very small sample sizes

© 2017 Houzz Inc.

17%

28%

21%

17%

4%

2%

0%

0%

5%

5%

18%

29%

32%

11%

$1,000 or less

$1,001 - $5,000

$5,001 - $10,000

$10,001 - $50,000

$50,001 - $100,000

$100,001 - $200,000

$200,001+

7

Hurricane Harvey dealt a far more damaging blow to homes than did Irma. Companies in the Houston area place the average renovation and repair cost for homeowners at $111,000, while companies on the southwestern Florida coast estimate the average cost at $13,000. Furthermore, one in 10 companies (11%) estimates the total repair and/or renovation costs from Hurricane Harvey at greater than $200,000.

Severe Cost Implications for Harvey-Affected Homeowners

ESTIMATED AVERAGE COST TO HOMEOWNER TO FIX HURRICANE-RELATED DAMAGE, AS REPORTED BY FIRMS IN HARDEST-HIT AREAS*

ESTIMATED AVERAGE COST TO HOMEOWNER

$13K Due to

Irma

$111K Due to Harvey

Harvey

Irma

U.S. Houzz Renovation Barometer | October 2017

*Areas hit hardest by Harvey include the Houston-Sugar Land-Baytown, TX, metro area; areas hit hardest by Irma include Cape Coral-Fort Myers, FL, Sarasota-Bradenton-Venice, FL, Tampa-St. Petersburg-Clearwater, FL, Naples-Marco Island, FL, and Punta Gorda, FL. **Findings about the impact of Hurricane Maria on Puerto Rico were not included due to very small sample sizes

© 2017 Houzz Inc. 8 U.S. Houzz Renovation Barometer | October 2017

CURRENT LABOR CONDITIONS

© 2017 Houzz Inc.

78% 75%

78% 77% 79%

Q3 ’17 Q1 ’17 Q3 ’16 Q1 ’16 Q3 ’15

9%

14%

15%

16%

18%

18%

20%

21%

22%

24%

24%

24%

25%

33%

39%

46%

Other HVAC specialist Siding specialist

Flooring specialist Cabinet specialist

Roofer Concrete specialist

Mason Painter

Drywaller Electrician

Plumber Tiler

Framer Laborer (general) Carpenter (finish)

9

More than three in four general contractors (GCs), remodelers, and design-build firms (78%) reported moderate to severe labor shortages across a wide range of skilled trades, which is in line with the 75%-79% who did so in the past two years. A greater share of Southern firms reported labor shortages relative to Q1 2017 (77% vs. 73%, respectively), although shortages are still most widespread in the Midwest. (See Appendices A and B.) Finish carpenters continue to be in greatest demand.

Labor Shortages Persist, With an Uptick in the South

Specialists in Short Supply*

*Percentages reflect proportion of GCs, remodelers, and design-build firms who reported moderate to severe shortages of specialists and general laborers.

MODERATE TO SEVERE LABOR SHORTAGES BY PRO TYPE REPORTED BY GCS, REMODELERS, DESIGN-BUILD FIRMS

U.S. Houzz Renovation Barometer | October 2017

© 2017 Houzz Inc.

59%

54%

9%

59%

50%

10%

Project cost

Project length

Project quality

56%

46%

26%

53%

44%

25%

Worker cost

Worker reliability

Worker skill level

CHANGES IN SUBCONTRACTOR AND PROJECT CHARACTERISTICS DUE TO LABOR SHORTAGES, AS REPORTED BY GCS, REMODELERS, DESIGN-BUILD FIRMS

10

Overall, firms report increases in costs of subcontractors and in deterioration of their reliability and skill levels due to labor shortages compared with a year ago. Firms report similar changes in their own employees. (See Appendix C.) In line with last year, over half of firms report labor shortages translating into costlier and lengthier projects (59% and 54%, respectively); however, most firms say they are still able to maintain project quality.

More Side Effects of Labor Shortages

U.S. Houzz Renovation Barometer | October 2017

Q3 2016

Q3 2017

© 2017 Houzz Inc.

2,345.7

1,425.5

1,935.8

982.5

556.9

757.1

0

500

1,000

1,500

2,000

2,500

Jan-

07

Apr

-07

Jul-0

7 O

ct-0

7 Ja

n-0

8 A

pr-0

8 Ju

l-08

Oct

-08

Jan-

09

Apr

-09

Jul-0

9 O

ct-0

9 Ja

n-10

A

pr-1

0

Jul-1

0

Oct

-10

Ja

n-11

A

pr-1

1 Ju

l-11

Oct

-11

Jan-

12

Apr

-12

Jul-1

2 O

ct-1

2 Ja

n-13

A

pr-1

3 Ju

l-13

Oct

-13

Jan-

14

Apr

-14

Jul-1

4 O

ct-1

4 Ja

n-15

A

pr-1

5 Ju

l-15

Oct

-15

Jan-

16

Apr

-16

Jul-1

6 O

ct-1

6 Ja

n-17

A

pr-1

7 Ju

l-17

Oct

-17

Residential Specialty Trade Employment Gap: 410,000

Residential Building Employment Gap: 225,000

EMPLOYMENT BY RESIDENTIAL BUILDING AND SPECIALTY TRADE FIRMS WITH EMPLOYEES (IN 1,000s)

11

BLS Data Watch: 600,000+ Employee Gap Persists

Source: January 2007-September 2017 Current Employment Statistics, BLS; https://www.bls.gov/web/empsit/cespeaktrough.pdf; August and September 2017 are projections.

In line with survey-reported labor shortages, the Bureau of Labor Statistics projects the employee gap among residential building/remodeling firms and residential building/remodeling specialty trade firms to remain at 635,000 as of September 2017, off from the January 2007 peak. The industry has gained 27,000 employees so far in 2017, although hiring slowed considerably in the third quarter.

Note: These estimates do not include a large number of non-employer firms contributing to the industry composition.

U.S. Houzz Renovation Barometer | October 2017

© 2017 Houzz Inc.

HOUZZ RENOVATION BAROMETER

PROJECT BACKLOG

12 U.S. Houzz Renovation Barometer | October 2017

© 2017 Houzz Inc.

5.0

5.9

Oct. 1, 2017

July 1, 2017

4.5 4.3

Oct. 1, 2017

July 1, 2017

7.1 7.0

Oct. 1, 2017

July 1, 2017

7.7 7.4

Oct. 1, 2017

July 1, 2017

4.8 5.2

Oct. 1, 2017

July 1, 2017

5.4 5.6

Oct. 1, 2017

July 1, 2017

Specialty: Building/Renovation Specialty: Landscape/Outdoor

Architects Designers

GCs/Remodelers Design-Build

13

At the start of Q4 2017, the Houzz Renovation Barometer Backlog Index shows a project backlog of 4.5 weeks to 7.7 weeks, on average, across all sectors, reflecting the average wait times before a company can start work on a new midsize project.* GCs and remodeling companies, as well as design-build companies, face the longest backlogs and saw slight increases in wait times relative to the start of Q3 2017. The backlog for other sectors decreased or stayed in line with the last quarter.

Remodelers Face Longer Backlogs

U.S. Houzz Renovation Barometer | October 2017

HOUZZ RENOVATION BAROMETER – AVERAGE PROJECT BACKLOG, IN WEEKS*

*Project backlog refers to the number of weeks until a firm can start work on a new midsized project given its current in-progress projects or orders and upcoming confirmed projects or orders.

© 2017 Houzz Inc.

13.2

12.8

9.3

9.0

7.8

6.7

6.6

6.5

6.5

6.5

Boston-Cambridge-Quincy, MA-NH

Seattle-Tacoma-Bellevue, WA

San Francisco-Oakland-Fremont, CA

Baltimore-Towson, MD

Minneapolis-St. Paul-Bloomington, MN-WI

Dallas-Fort Worth-Arlington, TX

Denver-Aurora, CO

Atlanta-Sandy Springs-Marietta, GA

Philadelphia-Camden-Wilmington, PA-NJ-DE-MD

Tampa-St. Petersburg-Clearwater, FL†

6.4

6.1

5.9

5.1

4.8

4.4

4.4

4.3

3.6

3.5

Los Angeles-Long Beach-Santa Ana, CA

Washington-Arlington-Alexandria, DC-VA-MD-WV

New York-Northern New Jersey-Long Island, NY-NJ-PA

Chicago-Naperville-Joliet, IL-IN-WI

Detroit-Warren-Livonia, MI

Houston-Sugar Land-Baytown, TX

Miami-Fort Lauderdale-Pompano Beach, FL

San Diego-Carlsbad-San Marcos, CA

Phoenix-Mesa-Scottsdale, AZ

St. Louis, MO-IL†

14

Regional Drilldown: GCs & Design-Build Companies

Across the four regions of the U.S., Western GCs, remodelers and design-build companies continue to see the longest backlog. (See Appendix D.) However, among the top 20 metro areas and consistent with the previous quarter, the average project backlog in Boston (13.2 weeks) exceeds the wait times in Western metro areas. Notably, the backlog in hurricane-stricken areas increased, from 2.9 weeks to 4.4 weeks in the Houston metro area and from 4.8 to 6.5 weeks in the Tampa metro area.

TOP 20 METRO AREAS* AVERAGE BACKLOG, AS OF OCT. 1, 2017, IN WEEKS** – GCS/REMODELERS/DESIGN-BUILD FIRMS COMBINED

*Top 20 metros exclude Riverside and include Baltimore instead due to sample size limitations. **Project backlog refers to the number of weeks until a firm can start work on a new midsized project given its current in-progress projects or orders and upcoming confirmed projects or orders. Interpret metro-level backlog estimates with caution due to small sample sizes (N<50). †Denotes limited sample size of four to 10 respondents.

U.S. Houzz Renovation Barometer | October 2017

© 2017 Houzz Inc.

HOUZZ RENOVATION BAROMETER

QUARTER-OVER-QUARTER CONFIDENCE SCORES

15 U.S. Houzz Renovation Barometer | October 2017

© 2017 Houzz Inc.

64

73

70

65

62

68

63

60

54

66

63 62

60

69

72 73

67 66

70

66 66 66 68

66 65

70

Q4 ’14

Q1 ’15

Q2 ’15

Q3 ’15

Q4 ’15

Q1 ’16

Q2 ’16

Q3 ’16

Q4 ’16

Q1 ’17

Q2 ’17

Q3 ’17

Q4E ’17

66

75

78

72

65

74 74 72

67

74 75

71 69 69

77 78

70

64

75

71 69

65

76

73

67 68

Q4 ’14

Q1 ’15

Q2 ’15

Q3 ’15

Q4 ’15

Q1 ’16

Q2 ’16

Q3 ’16

Q4 ’16

Q1 ’17

Q2 ’17

Q3 ’17

Q4E ’17

68

71

77

73

66

72 73

72

64

69

73 72

68

61

78

82

65

58

73

78

66

57

67

78

65

54

Q4 ’14

Q1 ’15

Q2 ’15

Q3 ’15

Q4 ’15

Q1 ’16

Q2 ’16

Q3 ’16

Q4 ’16

Q1 ’17

Q2 ’17

Q3 ’17

Q4E ’17

Specialty: Building/Renovation Specialty: Landscape/Outdoor

Architects Designers

GCs/Remodelers Design-Build

16

The Houzz Renovation Barometer posted readings of 62 to 72 in Q3 2017, indicating continued optimism in quarter-over-quarter market gains across all sectors. The onset of the seasonal slowdown is reflected in the 1% to 8% decrease in the scores relative to the previous quarter across all sectors, with the exception of a 17% decrease for specialty landscape/outdoor companies. These seasonal patterns are consistent with the same period last year (e.g., scores decreased 1 to 15% in Q3).

Continued Optimism at Onset of Seasonal Slowdown

*A reading over 50 indicates that more firms are reporting business activity is higher than are those reporting it is lower in a given quarter relative to the prior quarter. The greater the index value relative to 50, the greater the proportion of firms reporting increases in quarterly business activity to those reporting decreases. Business activity is measured as number of inquiries, number of new projects/orders, and size of new projects/orders.

Q4E reflects expectations for the coming quarter.

U.S. Houzz Renovation Barometer | October 2017

HOUZZ RENOVATION BAROMETER – QUARTER-OVER-QUARTER CONFIDENCE SCORES*

© 2017 Houzz Inc.

Q3 ’16

Q4 ’16

Q1 ’17

Q2 ’17

Q3 ’17

Q4E ’17

Q3 ’16

Q4 ’16

Q1 ’17

Q2 ’17

Q3 ’17

Q4E ’17

Q3 ’16

Q4 ’16

Q1 ’17

Q2 ’17

Q3 ’17

Q4E ’17

Q3 ’16

Q4 ’16

Q1 ’17

Q2 ’17

Q3 ’17

Q4E ’17

Q3 ’16

Q4 ’16

Q1 ’17

Q2 ’17

Q3 ’17

Q4E ’17

Q3 ’16

Q4 ’16

Q1 ’17

Q2 ’17

Q3 ’17

Q4E ’17

55 65 71 68 69 69

51 66 66 66 65 59 58 65 68 71

66 63 55

64 71 70 69

76

58 63 70 67 70 68

58 68 67 67 67

56

Architects Designers GCs & Remodelers Design-Build Specialty: Specialty: Building/Renovation Landscape/Outdoor

63 66 73

69 74

64 56 64 69

64 63 55

74 69

78 80 73

69 67 65

77 76 76 78

65 65 72

68 74

62 61 72 69 69 69

52

NO. OF INQUIRIES

NO. OF NEW PROJECTS/ORDERS

SIZE OF NEW PROJECTS/ORDERS

62 68 73

69 72 67

56 67 67 64 63 58 67 70

75 77 68 70

65 67

77 73 74

79

62 67 72

66 73

65 62 70 70 69 68

55

HOUZZ RENOVATION BAROMETER – COMPONENTS OF QUARTER-OVER-QUARTER CONFIDENCE SCORES*

17

Confidence Bolstered by Continued Influx of New Business

*See footnote on Page 16 for interpretation of the scores. The Houzz Renovation Barometer is a simple average of the scores of the three components. **YOY change indicates an increase or decrease of 3 points or more in Q3 2017 relative to Q3 2016.

Q4E reflects expectations for the coming quarter.

U.S. Houzz Renovation Barometer | October 2017

More firms continued to report quarter-over-quarter increases than decreases in number of inquiries and number and size of new projects in Q3 2017, as reflected by Barometer readings exceeding 50 across all industry groups (62 to 74, 62 to 73, and 58 to 70, respectively). Reading for Q3 2017 are in line with readings for Q2 2017 for nearly every segment.

YOY**

YOY**

© 2017 Houzz Inc.

Q3 ’16

Q4 ’16

Q1 ’17

Q2 ’17

Q3 ’17

Q4E ’17

Q3 ’16

Q4 ’16

Q1 ’17

Q2 ’17

Q3 ’17

Q4E ’17

Q3 ’16

Q4 ’16

Q1 ’17

Q2 ’17

Q3 ’17

Q4E ’17

Q3 ’16

Q4 ’16

Q1 ’17

Q2 ’17

Q3 ’17

Q4E ’17

Q3 ’16

Q4 ’16

Q1 ’17

Q2 ’17

Q3 ’17

Q4E ’17

Q3 ’16

Q4 ’16

Q1 ’17

Q2 ’17

Q3 ’17

Q4E ’17

57 65 72

66 73 70

56 66 66 65 61 63 66 69 74 75

67 70 64 66 77 73 69

76 62 65

75 66

76 66 59 69 64 65 65

51

Architects Designers GCs & Remodelers Design-Build Specialty: Specialty: Building/Renovation Landscape/Outdoor

NORTHEAST

MIDWEST

WEST

SOUTH

63 66 67 69 69 64 54

67 62 55 68 53

64 71 69 74

65 54 54

67 76 72

78 77

58 69 70 70 73 68

64 72 71 69 71

50

60 66 76 71 74

59 53 60 67 66 63 43 73

65 75 79

68 65 65 67 72 74 73

84

62 58 69 64 73

66 57 69 65 65 63 44

61 68 75 70 70 70

55 67 70 68 64 68 67 67 76 75 76 74

65 64 75 75 72 75 63 66 71 71 69 62 62

71 74 74 69 63

18

Year-Over-Year Weakening in the Midwest and South

Q4E reflects expectations for the coming quarter.

U.S. Houzz Renovation Barometer | October 2017

Barometer regional scores exceed 60 for nearly every industry group in Q3 2017. In the Midwest and the South, however, several sectors show signs of weakening year over year, likely in part due to hurricane-related disruptions late in the quarter. In contrast, remodelers and building specialty firms in the Northeast and West report robust year-over-year gains.

*Click these links to see the Houzz Renovation Barometer by state and by major metro area. See footnote on Page 16 for interpretation of the scores.**YOY change indicates an increase or decrease of 3 points or more in Q3 2017 relative to Q3 2016.

HOUZZ RENOVATION BAROMETER – REGIONAL QUARTER-OVER-QUARTER CONFIDENCE SCORES*

YOY**

YOY** YOY**

YOY** YOY**

YOY**

YOY**

YOY** YOY** YOY**

YOY** YOY** YOY** YOY** YOY**

© 2017 Houzz Inc. 19 U.S. Houzz Renovation Barometer | October 2017

HOUZZ RENOVATION BAROMETER

YEAR-OVER-YEAR CONFIDENCE SCORES

© 2017 Houzz Inc.

74 76 76

75

72 70

67

64

61

65 65 67

76 74

75 74

73 72

66

70 72

71

68 69

Q4 ’14

Q1 ’15

Q2 ’15

Q3 ’15

Q4 ’15

Q1 ’16

Q2 ’16

Q3 ’16

Q4 ’16

Q1 ’17

Q2 ’17

Q3 ’17

77 76

80 78

76 78

76 77

75 76 76

75

79 79 80

79

76 75

73 73 73

77

74 73

Q4 ’14

Q1 ’15

Q2 ’15

Q3 ’15

Q4 ’15

Q1 ’16

Q2 ’16

Q3 ’16

Q4 ’16

Q1 ’17

Q2 ’17

Q3 ’17

80

77 79

77 75

74 74 74 73 73

72 74

80

77

83

79

75

78 77

75

70 72

78

74

Q4 ’14

Q1 ’15

Q2 ’15

Q3 ’15

Q4 ’15

Q1 ’16

Q2 ’16

Q3 ’16

Q4 ’16

Q1 ’17

Q2 ’17

Q3 ’17

Specialty: Building/Renovation Specialty: Landscape/Outdoor

Architects Designers

GCs/Remodelers Design-Build

20

*A reading over 50 indicates that more firms are reporting business activity is higher than are those reporting it is lower in a given quarter relative to the same quarter of the prior year. The greater the index value relative to 50, the greater the proportion of firms reporting increases in quarterly business activity to those reporting decreases. Business activity is measured as number of inquiries, number of new projects/orders, and size of new projects/orders.

U.S. Houzz Renovation Barometer | October 2017

The Barometer posted year-over-year readings of 67 to 75 in the third quarter of 2017, indicating high optimism in continued year-over-year gains in the home renovation market. These scores are in line with Q2 2017 scores (65 to 78). The year-over-year scores for architects increased from 65 in Q2 to 67 in Q3 and are now at the highest level since Q2 2016.

Architect Outlook Continues to Improve Year Over Year

HOUZZ RENOVATION BAROMETER – YEAR-OVER-YEAR CONFIDENCE SCORES*

© 2017 Houzz Inc.

METHODOLOGY

21 U.S. Houzz Renovation Barometer | October 2017

© 2017 Houzz Inc.

Methodology

The Houzz Renovation Barometer tracks quarterly fluctuations in business activity related to renovation of owner-occupied existing homes. The study is conducted quarterly and presents an analysis of responses to an online survey sent out to a national U.S. panel of architects, interior designers, general contractors/remodelers, design-build firms, and building/renovation and landscape/outdoor specialists. The Houzz Renovation Barometer survey for the current quarter was fielded September 28 to October 12, 2017. N = 2,241 (310 architects, 410 interior and building designers, 525 general contractors/remodelers, 374 design-build firms, 434 building/renovation specialists1 and 188 landscape/outdoor specialists2).

Index Construction Method: The Houzz Renovation Barometer survey asks professionals to indicate whether certain business activities increased, decreased, or stayed about the same in a given quarter; changes in activity are measured quarter over quarter and year over year. Business activity refers to number of inquiries, number of new projects/orders, and average size of new projects/orders. The final Houzz Renovation Barometer is constructed as a diffusion index that 1) sums up the proportion of firms reporting increases in a given business activity and one-half of the proportion of firms reporting no change in the activity; and 2) averages the sums across the three components, with equal weights assigned to each component. Diffusion indices are a widely accepted method for tracking turning points in the market. For more information on the methodology, see U.S. Houzz Barometer Study, February 2015.

22

1 Building/renovation specialists include replacement contractors (e.g., carpenters) and product installers/manufacturers/resellers (e.g., cabinetry). 2 Landscape/outdoor specialists include landscape architects, designers, and contractors; outdoor replacement tradespeople (pavers); and outdoor product installers/manufacturers/resellers (e.g., pools and spas).

U.S. Houzz Renovation Barometer | October 2017

© 2017 Houzz Inc.

APPENDICES

23 U.S. Houzz Renovation Barometer | October 2017

© 2017 Houzz Inc. 24 U.S. Houzz Renovation Barometer | October 2017

Appendix A: Regional Overall Labor Shortages

MODERATE TO SEVERE TRADE/LABOR SHORTAGES, AS REPORTED BY GCS, REMODELERS, DESIGN-BUILD FIRMS*

Q3 2015 Q1 2016 Q3 2016 Q1 2017 Q3 2017

Northeast 70% 72% 71% 69% 73%

Midwest 84% 85% 84% 85% 84%

South 78% 78% 81% 73% 77%

West 82% 76% 81% 78% 79%

*Percentages reflect proportion of GCs, remodelers, and design-build firms who reported moderate to severe shortages of specialists and general laborers.

© 2017 Houzz Inc. 25 U.S. Houzz Renovation Barometer | October 2017

Appendix B: Regional Labor Shortages by Pro Type

*Percentages reflect proportion of GCs, remodelers, and design-build firms who reported moderate to severe shortages of specialists and general laborers.

MODERATE TO SEVERE TRADE/LABOR SHORTAGES, AS REPORTED BY GCS, REMODELERS, DESIGN-BUILD FIRMS*

Profession Northeast Midwest South West Carpenter (finish) 49% 52% 40% 48% Laborer (general) 36% 40% 35% 44% Framer 22% 37% 34% 38% Tiler 24% 30% 19% 30% Plumber 22% 20% 23% 30% Electrician 20% 21% 23% 31% Drywaller 18% 21% 25% 30% Painter 20% 19% 21% 27% Mason 20% 23% 23% 19% Concrete specialist 16% 20% 19% 25% Roofer 15% 19% 20% 20% Cabinet specialist 17% 15% 17% 22% Flooring specialist 14% 15% 14% 19% Siding specialist 16% 18% 14% 15% HVAC specialist 16% 10% 14% 16% Other 2% 2% 4% 7%

© 2017 Houzz Inc. 26 U.S. Houzz Renovation Barometer | October 2017

Appendix C: Effect of Labor Shortages on Own Employees

CHANGES IN OWN EMPLOYEE CHARACTERISTICS DUE TO LABOR SHORTAGES, AS REPORTED BY GCS, REMODELERS, DESIGN-BUILD FIRMS

Q3 2016 Q3 2017

Employee cost 37% 41%

Employee reliability 12% 13%

Employee skill level 11% 10%

© 2017 Houzz Inc. 27 U.S. Houzz Renovation Barometer | October 2017

Appendix D: Regional Project Backlog

Northeast Midwest South West Jul. 1, 2017

Oct. 1, 2017

Jul. 1, 2017

Oct. 1, 2017

Jul. 1, 2017

Oct. 1, 2017

Jul. 1, 2017

Oct. 1, 2017

Architects 6.0 4.7 4.1 6.0 6.2 3.5 6.5 5.8

Designers 4.2 4.6 3.5 4.0 3.9 4.2 4.9 4.9

GCs/Remodelers 6.4 7.2 6.9 8.0 6.5 5.6 7.9 8.7

Design-Build 7.7 9.7 6.9 7.0 6.5 6.3 8.3 9.1

Specialty: Building/Renovation 6.3 5.5 5.3 5.0 4.9 4.7 5.0 4.3

Specialty: Landscape/Outdoor 5.8 5.6 5.9 6.5 4.7 4.0 6.3 6.5

HOUZZ RENOVATION BAROMETER – REGIONAL AVERAGE PROJECT BACKLOG, IN WEEKS*

*Project backlog refers to the number of weeks until a firm can start work on a new midsized project given its current in-progress projects or orders and upcoming confirmed projects or orders.

© 2017 Houzz Inc. 28

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U.S. Houzz Renovation Barometer | October 2017