Citi said the U.S. home improvement industry and related stocks have continued to underperform in 2026, mainly pressured by a combination of interest rates, energy costs, housing affordability and geopolitical uncertainty. After attending the HIRI Home Improvement Insights Summit, the firm noted that home improvement demand is highly likely to remain subdued over the next 12 months, and the market has already begun pricing in the risk that this weakness could extend into 2027.

The biggest constraint remains high interest rates and housing affordability. Although consumers overall remain resilient, the job market is relatively stable and household wealth levels are still high, mortgage costs are still clearly weighing on home transactions and willingness to undertake large renovations. The HIRI survey shows that a mortgage rate of around 5% may be an important psychological threshold affecting whether homeowners are willing to move. Currently, about 80% of homeowners with mortgages have rates below 6%, and about half of them are even below 4%. This means that a large number of homeowners would face significantly higher financing costs if they sold their existing homes and took out new loans. This "low-rate lock-in effect" not only suppresses home sales but also directly affects home improvement demand. When housing transactions decline, renovations, remodeling and major upgrade projects before and after moving also decline in tandem.

At the same time, project delays and cancellations are increasing noticeably. Surveys of homeowners show that about one-third of home improvement projects are currently being postponed or canceled. Another survey of contractors shows that about 60% of professionals have experienced at least one project cancellation over the past period, a share clearly higher than last year. The economic environment and inflation are the reasons most frequently cited by consumers. Among projects that are still moving forward, spending is increasingly concentrated on repairs and necessary maintenance rather than large upgrades and discretionary renovations. Some consumers are also proactively scaling down project scope to fit tighter budgets.

This also explains why the home improvement industry is not experiencing "no demand at all" right now, but rather a shift in the structure of demand. Consumers still need to replace aging fixtures, repair roofs, electrical systems and plumbing, but they are more likely to postpone kitchen remodels, additions and other high-ticket improvement projects.

However, Citi believes the industry's long-term fundamentals have not deteriorated significantly. Americans now stay in the same home for an average of 10 to 11 years, compared with only about 7 to 8 years in the past. A longer residency period means homeowners need to bear more ongoing maintenance and renewal spending. At the same time, the average age of the U.S. housing stock has reached 44 years. As homes age, repair demand for roofs, HVAC, electrical, plumbing and other infrastructure naturally increases, providing a relatively stable long-term demand base for the home improvement industry.

Household balance sheets also still provide some support. The average U.S. homeowner has about $450,000 in home equity, offering a potential source of funds for future consumption. Meanwhile, the underbuilding of single-family homes in the United States over roughly the past 20 years also means the importance of the existing housing stock has further increased.

Therefore, the current weakness in home improvement stocks looks more like a mismatch between "short-term cyclical pressure" and "long-term structural demand." High interest rates limit housing transactions, while inflation and uncertainty lead consumers to postpone discretionary projects, so industry growth may remain sluggish over the next year. But rising home ages, longer residency periods and relatively high household home equity all mean that repair and improvement demand will not disappear.

Artificial intelligence may become another variable that improves efficiency. Lowe's said its AI strategy is mainly used to enhance employee capabilities rather than replace employees, while contractors may also reduce costs through AI in back-office management, quoting and operational processes.

Overall, Citi's view on the home improvement industry can be summarized as follows: short-term demand is being held down by high interest rates and low housing turnover, and project delays and scale-backs remain widespread, so weakness in home improvement stocks may persist. But over the longer term, aging U.S. housing and repair demand still provide solid support for the industry.