Furniture Demand Faces the Elasticity Test, but Housing Turnover and Home Price Appreciation Hold the Key

With tariff-driven price increases now flowing through the furniture industry, the question of how much demand destruction higher prices will cause has become increasingly relevant. Over the last year, incremental tariffs on imports from China, India, Vietnam, and other Asian countries have pushed furniture prices materially higher. The CPI reported a 4.0% year-over-year price increase for furniture and bedding in January 2026, accelerating for two consecutive months from an average of 2.9% in October and November.
 
While pricing strategies have varied across the industry, there has been a universal desire to pass on tariff costs and maintain margins. A vast majority of retailers in our Furniture Survey have seen margins expand in 4Q25, while a little over half of suppliers have seen theirs contract. Supplier margins improved throughout the quarter and most saw margins up in December. Based on our conversations with industry participants in our network and at most recent Vegas furniture show, we continue to expect prices to be higher in 2026 from last year.
 
We analyzed the PCE furniture and furnishings data to understand the price elasticity of demand in prior inflationary periods. It is basic economic theory that higher prices lead to lower unit volumes and the data supports that premise. Since 1965, there have been nine years when prices increased by more than 4%, and the median elasticity across those years was -0.42, meaning that for every 1% increase in price, units declined by 42 basis points.
 
We went further by layering housing market activity as well, and we found that in the years with furniture unit declines greater than 4%, elasticity worsened to -0.56. However, in those years existing home sales declined by a median of 11%. Conversely, in years when existing home sales increased by a median of 9%, furniture units increased by 5% and elasticity was +0.85. The takeaway is that the drag on demand from price elasticity can be offset by an improving housing market. This brings us to housing.
 
Following the stronger-than-expected increase in December, the NAR reported that January existing home sales declined 8% sequentially and 4% year over year. However, we note that the recently expedited release of existing home sales data in 2026 raises questions about the NAR's data collection process. We do not believe one data point, particularly one that may be impacted by methodological changes, warrants a revision to our outlook, which calls for 5-6% growth in 2026-27.
 
Another important factor is home price appreciation. While we forecast flat to slightly-up price growth over the next two years, below the 5% average over the last four decades, we expect the regional divergence to continue, with downward price pressure in the Sunbelt states, where homebuilders overbuilt, and inventories are up significantly relative to 2019 (prices are down 2% in Tampa, 3% in Dallas and nearly 4% in Austin in 2025) and price increases in the Midwest and the Northeast (Cleveland and Chicago are up 5%). Home price declines impact consumer confidence, making them more reluctant to spend on bigger-ticket items such as furniture, especially if they are also worried about losing their jobs.
 
To sum it up, given an overstretched consumer, we anticipate negative price elasticity over the near term. However, we believe that elasticity will be ameliorated by growth in existing home sales this year. Home price appreciation will continue to vary by market. We are also watching carefully the impact that advances in AI are having on the upper middle class, both in terms of job displacement and consumer confidence. If consumers fear for their jobs security, they might be less willing to open their wallets.