High Rates Weigh on U.S. Home Improvement Demand

Uncertainty over interest rates, energy prices, housing affordability and geopolitical risks is pressuring the U.S. home improvement industry in 2026, with Citi analysts warning that sluggish conditions could extend into next year.

Following the HIRI Home Improvement Insights Summit, Citi said economists generally expect home improvement demand to remain flat over the next 12 months. Elevated borrowing costs and poor housing affordability remain major obstacles, although resilient consumer finances, a stable labor market and strong household wealth offer some support.

Mortgage rates are particularly important. HIRI survey data showed that rates around 5% could represent a psychological threshold for homeowners considering moving. Roughly 80% of U.S. homeowners with mortgages currently pay rates below 6%, while about half have rates under 4%, reducing the incentive to sell and take on more expensive financing.

Consumers are also postponing renovation projects. Around one-third of planned home improvement projects are being delayed or cancelled, according to a homeowner survey. Separately, 60% of contractors reported experiencing at least one project cancellation, a sharp increase from the previous year.

Economic uncertainty and inflation are among the most frequently cited reasons. Homeowners who proceed with projects are increasingly prioritizing essential maintenance and repairs, while some are reducing project sizes to stay within tighter budgets.

Long-term fundamentals remain more favorable. Americans now stay in their homes for an average of 10 to 11 years, up from roughly seven to eight years previously. Meanwhile, the average U.S. home is about 44 years old, increasing the need for repairs, renovations and maintenance.

Households also hold approximately $450,000 in average home equity, potentially providing significant spending capacity. An economist from the National Association of Home Builders also noted that the U.S. has experienced about two decades of underbuilding in single-family housing.

Artificial intelligence could provide another opportunity for the sector. Lowe’s technology chief said the retailer is focused on using AI to enhance employee productivity rather than replace workers, while contractors could use the technology to streamline administrative operations.

Still, recent weakness in home improvement stocks suggests investors increasingly expect subdued industry growth to persist into 2027.