Why Home Improvement Stocks Are Lagging in 2026, According to Citi
U.S. home improvement stocks are struggling to keep pace with the broader market in 2026 as high borrowing costs, weak housing affordability and cautious homeowners weigh on demand for large renovation projects. Citi analysts highlighted the pressure after attending the HIRI Home Improvement Insights Summit, where industry participants broadly expected home improvement demand to remain roughly flat over the next 12 months. (Investing.com)
The weakness is particularly important for major retailers such as Home Depot and Lowe's. Their businesses depend not only on routine repairs but also on larger discretionary projects such as kitchen renovations, bathroom upgrades and other remodeling work.
Citi's assessment suggests that the problem is less about consumers abandoning home improvement altogether and more about when and how much they are willing to spend.
High Mortgage Rates Are Keeping Homeowners in Place
One of the biggest obstacles is the U.S. housing market.
Many existing homeowners locked in exceptionally low mortgage rates several years ago. HIRI survey data cited by Citi indicates that about 80% of homeowners with mortgages currently have rates below 6%, while roughly half have rates below 4%. (Investing.com)
That creates what economists and retailers often call the mortgage-rate lock-in effect.
A homeowner with a 3% mortgage may be reluctant to sell a house and take on a new mortgage at a significantly higher rate. As a result, fewer homeowners move, and moving often triggers spending on renovations, furnishings and other household purchases.
This matters for home improvement retailers because housing turnover can generate significant demand. When people buy or sell homes, they frequently undertake projects that might otherwise be postponed.
Lowe's management has also acknowledged that historically low housing turnover is connected to the broader rate environment. In its first-quarter 2026 earnings call, the company said it entered the year with a muted view of overall home improvement market growth while continuing to focus on gaining market share. (Lowe’s Corporate)
Large Remodeling Projects Are Being Delayed
The second major issue is consumer caution.
Citi cited homeowner survey data showing that roughly one-third of projects were being delayed or cancelled. A separate contractor survey found that 60% of professionals had experienced at least one cancelled project, a significant increase from the previous year. (Investing.com)
That distinction is crucial.
Consumers still need to replace broken appliances, repair roofs, fix plumbing problems and maintain their homes. But a kitchen renovation costing tens of thousands of dollars can be postponed when household budgets become less certain.
As a result, maintenance and repair spending is proving more resilient than discretionary remodeling.
This creates a difficult environment for retailers because large projects can generate much bigger individual transactions than basic maintenance purchases.
Why Housing Affordability Matters Beyond Mortgage Rates
Higher interest rates have also made homes less affordable for potential buyers.
When mortgage payments consume a larger portion of household income, consumers have less flexibility for renovation and discretionary spending. Even homeowners with substantial equity may prefer to preserve cash rather than commit to a major project.
Citi's assessment therefore points to a broader affordability problem rather than simply a temporary decline in consumer confidence. Until financing conditions become more favourable, some homeowners may continue delaying projects.
That helps explain why the home improvement industry can remain relatively weak even while the overall U.S. consumer remains reasonably resilient.
Consumers Are Still Spending — But Differently
The picture is not entirely negative.
Citi noted that resilient consumers, a stable labour market and substantial household wealth are providing support to the sector. Homeowners also have significant accumulated equity, which could eventually support renovation spending when confidence improves. (Investing.com)
The key issue is timing.
Consumers may be willing to spend $500 on a necessary repair while delaying a $20,000 remodeling project. That means sales can remain stable without returning to the stronger growth rates investors might expect from a housing recovery.
For retailers, the ability to gain market share becomes especially important in this environment.
Lowe's, for example, said it had continued to take share in the small- and medium-sized professional segment and home services while its dot-com business grew 15.5% in the first quarter. (Lowe’s Corporate)
Why Energy Costs and Inflation Are Another Headwind
Home improvement is also sensitive to input costs.
Higher energy prices can raise transportation and operating expenses across the supply chain. Inflation can simultaneously make building materials, labour and contractor services more expensive for consumers.
When the cost of a project rises, homeowners may respond by postponing it, reducing its scope or choosing less expensive materials.
Citi's latest assessment therefore places energy costs alongside interest rates, affordability and geopolitical uncertainty as factors influencing the sector. (Investing.com)
For investors, this creates a potentially difficult combination: retailers need consumers to undertake more projects while customers themselves are facing higher costs.
Why Home Improvement Stocks Are Lagging
The market appears to be looking beyond today's sales and focusing on the possibility that weak industry growth could persist into 2027. (Investing.com)
That matters for stock valuations.
Home improvement companies are often valued partly on their ability to generate relatively dependable sales and cash flow. If investors begin expecting several quarters of weak comparable-store sales — sales from established stores excluding the effect of new locations — they may become less willing to pay premium valuations.
Recent trading illustrates the pressure. On September 28, Home Depot shares fell 1.13% to $289.89, while Lowe's declined 0.86% to $187.66. Home Depot remained substantially below its recent 52-week high. (MarketWatch)
The share-price weakness does not necessarily mean the underlying businesses are deteriorating permanently. Instead, investors are weighing a slower near-term growth outlook against the companies' longer-term strengths.
The Long-Term Case Has Not Disappeared
Citi's assessment is cautious about the near-term outlook, but the structural case for home improvement remains intact.
Americans are staying in their homes longer. The average U.S. housing stock is about 44 years old, according to information cited at the HIRI summit. Longer ownership periods and an aging housing stock create ongoing requirements for repairs, replacements and upgrades. (Investing.com)
The U.S. also experienced roughly two decades of underbuilding in single-family housing, according to an economist from the National Association of Home Builders. That could support renovation demand over time as older homes require investment. (Investing.com)
This creates an important distinction for investors:
The industry's long-term demand drivers can remain strong even while short-term sales growth is weak.
That is why the sector's current weakness should not automatically be interpreted as a permanent decline.
Could AI Help Home Improvement Retailers?
Technology is another potential long-term catalyst.
Lowe's technology strategy includes using artificial intelligence to augment employees rather than simply replace them. AI could potentially improve product search, inventory management, customer service and contractor back-office operations. (Investing.com)
For a retailer operating thousands of stores and handling millions of products, even relatively small improvements in inventory accuracy or customer conversion could have meaningful financial benefits.
But AI is unlikely to solve the industry's biggest immediate problem: homeowners cannot easily be persuaded to undertake a major renovation when mortgage costs and household budgets discourage them.
Technology may improve efficiency and margins, but it cannot by itself create housing demand.
What Investors Should Watch Next
The most important indicators for Home Depot, Lowe's and the wider home improvement sector are likely to be:
Mortgage rates: A sustained decline could encourage housing turnover and renovation activity.
Housing affordability: Improving affordability could release pent-up demand.
Comparable-store sales: Investors should watch whether growth improves or remains flat.
Professional contractor demand: Pro customers are important because their projects tend to be larger.
Repair versus remodeling: A shift from basic maintenance toward discretionary projects would be a more meaningful recovery signal.
Consumer confidence and employment: A stable labour market can support household spending.
Gross margins and costs: Material, labour, freight and energy costs can influence profitability even when sales are stable.
Housing turnover: More buying and selling could stimulate a wider range of home-related spending.
Conclusion
Home improvement stocks are lagging in 2026 because the U.S. housing market remains constrained by high financing costs, weak affordability and the mortgage-rate lock-in effect. Consumers are still spending on essential repairs, but many are postponing expensive discretionary renovations.
Citi's analysis suggests the near-term industry outlook remains subdued, with demand expected to stay broadly flat over the coming year. At the same time, aging homes, longer ownership periods and significant household equity provide a potentially stronger structural backdrop.
For investors, the key signal to watch is not simply whether sales stop falling. A more convincing recovery would likely involve improving housing turnover, lower mortgage rates and renewed spending on larger remodeling projects.
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Disclaimer: This article is for informational and educational purposes only and should not be considered investment advice.