I upgraded my house to the one that gives you kids (level 4?) and all of the wallpaper and flooring reverted to the default.
Reproduction Steps - My house upgrade completed on the beach clean up day in year 3.
Game Platform - Steam
Game Version - 1.2-1239
Input Mode - Keyboard and mouse
#House upgrade deleted Wallpaper and Flooring
bronze thicket
bleak rock
Hello @bronze thicket could you send us your Backup folder in a .zip file as well? You can find it in the same location as your DailySave file.
bronze thicket
pearl bramble
@bleak rock Having the same issue here. Upgraded my house to stage 4 and my wallpapers plus floorings that I set for my house are gone. They aren't even in the storage anymore. Also on PC and steam and using controller
floral quiver
bleak rock
Sorry for the late reply and thank you for your patience. I'll relay this with the team for checking and I'll reach back to you if we need more information 
sinful prairie
This happened to me on PS5! I didn't notice if it was related to the house upgrade but the pretty Halloween wallpaper I bought is gone. (my house is stage 4 as well)
hushed lintel
just happened to me also - on PS5. went from stage 3 to 4 and it took my flooring and wallpaper - all other decor in place
warm whale
I'm sad I didn't know about this, RIP my halloween wallpapers xD steam pc
heavy flame
Happened to me on Xbox Series X. And after the wallpapers went to default, everytime I go into decoration mode, the game crashes
lone vault
Also had this issue when I updated to level 4 house on PS5
summer wedge
Hiyaa everyone! 💛
I’m part of the team too, and this issue has already been forwarded to the devs and is currently being worked on. We really appreciate you taking the time to report it and for your patience while we work on a fix. Thank you so much!
old cosmos
I also just had this happen on PC