Custom Integrators Riding High, But Will The Housing Market Hold?

State of the Customer Installation Business According to CEDIA
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It's apparently the best of times for the custom installation and integration business, according to a new CEDIA-sponsored state-of-the-industry report by research firm The Farnsworth Group.

Grant Farnsworth dishes on the state of the industry at CEDIA Expo 2018.

Grant Farnsworth dishes on the state of the industry at CEDIA Expo 2018.

But there are signs on the horizon of a possible housing market slowdown, principal Grant Farnsworth warned a CEDIA 2018 crowd on Thursday, which could put the brakes on continued expansion.

Despite a positive macroeconomic backdrop of low unemployment and rising household income, key indicators suggest that the current housing boomlet could lose some of its punch by early next decade. Amongst them: limited inventory, which is pushing home prices higher; slowly rising interest rates, which make mortgages more expensive; and increased materials costs and a smaller labor pool, which is burdening homebuilders.

That all translates into a projected slowdown in housing starts, with growth in single-family units expected to tick down a percentage point this year to an 8 percent gain, while starts for multi-family dwellings are forecasted to rebound this year to three percent growth, before declining three percent in 2020.

For the moment, though, the good times continue to roll. Based on a May-July survey of 584 professional system integrators and AV installers, Farnsworth sized the residential market for their services at roughly $18.7 billion in 2017, with custom install companies pulling in about $2 million a year on average. But 94 percent of respondents also take on commercial jobs, up from 75 percent in 2016, whilst 17 percent also do work in industrial facilities.

The biggest categories for the installation and integration crowd include control systems, valued at about $5.1 billion; audio systems, which pull in about $4.2 billion a year; and home networks, good for some $1.6 billion in fees.

To keep the ball rolling, CEDIA members should look to home renovation in general and smart-home systems and devices in particular, which Farnsworth pegged as one of the hottest growth opportunities. Nearly half of all home renovations incorporate some manner of smart technology, he said, and about a quarter of those involve a home security upgrade. That compares to the 18 percent of smart installations that include connected entertainment, the 14 percent that involve climate control, and the 12 percent that call for controlled lighting.

But take IoT out of the equation, and lighting remains the most popular upgrade, requested by 78 percent of renovating homeowners.

All told, expenditures on home remodeling projects rose seven percent in 2017, to $182 billion, and are expected to rise another seven percent this year, Farnsworth said.

And, despite the possible headwinds for new home construction, the builder channel remains a key market opportunity for integrators/installers, as more than 40 percent of new home buyers purchased residences with smart-tech features in 2017; about 60 percent are willing to pay more for those features; and roughly 80 percent will opt for them if offered an upgrade by the builder, Farnsworth noted.

Little wonder then that CEDIA members have a positive outlook. Housing constraints and international trade issues aside, nearly all respondents expect their revenue to rise over the next 12 months, with 34 percent projecting increases of 8 to 10 percent; a third anticipating gains of 11 to 20 percent; and seven percent forecasting spikes of 31 to 50 percent.

But it won't be easy getting there: chief challenges include a dearth of qualified workers, cited by 29 percent of those polled; improvements in DIY products, cited by 15 percent; and online competition, customer misinformation and constantly changing technology, cited by nine percent each.

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