RBC Capital Markets has turned more cautious on the building products sector ahead of the third-quarter earnings season, cutting earnings forecasts and downgrading several stocks on expectations that elevated interest rates, inflation, and weak housing demand could persist through 2027.

Chief analyst Mike Dahl said that as housing recovery expectations continue to cool, RBC has effectively removed organic volume growth from its models. The firm now expects U.S. single-family housing starts to fall about 5% in 2026 and another 1% in 2027, while repair and remodel spending is projected to grow just 1% this year and remain roughly flat next year.

These revisions are significant for investors because Wall Street estimates may still assume a stronger housing rebound than RBC believes is possible. The firm lowered its 2027 average earnings per share forecast for building products manufacturers by about 10% and its EBITDA forecast by 7%.

RBC believes manufacturers are especially vulnerable to rising raw material costs and limited pricing power, and in the current inflationary environment it generally favors distributors over manufacturers.

RBC downgraded Builders FirstSource (BLDR.US) from "Outperform" to "Sector Perform" and slashed its price target to $62 from $88. The firm expects 2027 EBITDA of $1.06 billion, down 16% from its prior estimate and below the $1.21 billion consensus. RBC cited worsening housing starts, intense competition, and pressure on gross margins. Higher leverage could also limit share buybacks and other capital allocation.

Owens Corning (OC.US) was also downgraded from "Outperform" to "Sector Perform," with its price target cut to $127 from $172. RBC believes the roofing business may perform better than feared in the third quarter, but weakening demand, distributor destocking, and rising oil and asphalt costs will weigh on the fourth quarter and 2027. Its 2027 EPS estimate was cut to $10.16 from $12.20, versus the consensus of $11.81.

The firm is more bearish on Mohawk Industries (MHK.US), downgrading the flooring manufacturer from "Sector Perform" to "Underperform" and lowering its price target to $112 from $130. RBC expects weak flooring demand to collide with rising oil, diesel, and natural gas costs. Its fourth-quarter EPS estimate of $1.42 is well below the $1.69 consensus, and its 2027 estimate of $8.97 compares with Wall Street's $10.06.

RBC is most pessimistic on Whirlpool (WHR.US), maintaining an "Underperform" rating and cutting its price target to $22 from $32. Its 2027 EPS estimate is just $1.15, versus the consensus of $3.53. The firm cited weak appliance demand, competitive pricing, potential Canadian tariff costs, and the possibility of higher steel costs after contract repricing.

There are still top picks. Ferguson Enterprises (FERG.US) is RBC's favorite long idea, rated "Outperform" with a $286 price target, reflecting strong performance in large projects and HVAC. RBC also maintained "Outperform" ratings on Fortune Brands Innovations (FBIN.US), Core & Main (CNM.US), SiteOne Landscape Supply (SITE.US), and QXO (QXO.US), but warned that QXO could face near-term roofing and macroeconomic headwinds.

The broader message from Dahl's report is that the industry's hoped-for 2027 recovery is being pushed further back. RBC's revised construction forecasts show 2027 single-family housing starts at about 890,000, below its previous assumption of 5% growth; repair and remodel spending is now expected to be roughly flat rather than up 3.1%. For investors, as the sector waits for housing demand to recover, company-specific pricing power, exposure to a stronger non-residential market, and the ability to protect margins are becoming increasingly important.