Layla Zulfa
The home improvement and repair sector is experiencing a distinct divergence in consumer behavior, with essential maintenance and repair work demonstrating resilience, while larger, discretionary renovation projects are facing significant headwinds. This dual reality, highlighted in recent earnings calls from retail giants The Home Depot and Lowe’s, underscores a market shaped by persistent economic uncertainty, elevated interest rates, and pressing affordability concerns that are compelling consumers to prioritize necessity over aspiration. Analysts and company executives alike predict this trend of cautious spending and deferred large-scale projects will likely persist through at least the end of 2026, with third-party research corroborating a prolonged period of subdued demand for major renovations.
The Bifurcation of Home Improvement Spending
The most recent financial disclosures from The Home Depot and Lowe’s, both released in mid-August, painted a clear picture of this bifurcated market. While executives at both companies expressed long-term optimism for the home improvement industry, their near-term outlook acknowledged a palpable slowdown in big-ticket discretionary spending.
During The Home Depot’s Q2 2027 earnings call on August 18, Chief Financial Officer Richard McPhail noted "broad-based demand across the business." However, he elaborated that this strength was predominantly concentrated in smaller, more necessity-driven projects. "Remodeling demand is holding up in smaller repair-and-maintenance and replacement contractor work," McPhail stated, "but large discretionary renovations remain under pressure."
The contributing factors cited by The Home Depot executives were multifaceted and have been a recurring theme in economic discourse over the past year. These include the persistent impact of high interest rates, the ongoing challenge of housing affordability, inflationary pressures on goods and services, the ripple effects of tariffs, elevated fuel and energy prices, and a general sense of economic uncertainty that fosters a more risk-averse consumer mindset.
Bill Bastek, The Home Depot’s EVP of Merchandising, reinforced this sentiment during the earnings call, stating, "There’s certainly still a lot of pressure, obviously, on larger… discretionary finance projects. That’s a continued narrative that we’re still seeing in the business." This suggests that while consumers are willing to address immediate needs and keep their homes in good repair, they are holding back on substantial investments that would fundamentally alter or expand their living spaces.
Similarly, Lowe’s executives echoed these observations during their earnings call on August 19. While maintaining that the home improvement market’s long-term prospects remain "fundamentally healthy," they acknowledged a current period of "unusually weak discretionary demand."
Lowe’s Chief Financial Officer Brandon Sink identified affordability as the "major concern," encompassing not just mortgage rates but also home prices, insurance premiums, and property taxes. "That’s really translating to prioritization of repair maintenance spend and the projects that our consumers are engaging in, and this ongoing trend of caution around big-ticket discretionary," Sink explained. This prioritization means that consumers are more likely to invest in fixing a leaky roof or updating a worn-out appliance rather than undertaking a kitchen remodel or a major addition.
The Impact on Professional Contractors and Consumer Sentiment
The trend of smaller projects is also evident within Lowe’s Pro division, which typically serves professional contractors. While this division is outperforming the DIY segment, the nature of the projects being undertaken by these professionals has also shifted.
Joe McFarland, Lowe’s Executive Vice President of Stores, shared insights from their core Pro customers: "Their backlogs are steady. However, they are seeing a homeowner who is more cautious about their spending. This is leading to consistently smaller projects focused on repair and maintenance needs rather than larger remodeling jobs." This indicates that even professional contractors, who often handle more significant projects, are experiencing a recalibration of client expectations and project scopes.
Adding further context to this cautious consumer sentiment, data from the University of Michigan’s Consumer Sentiment Index reveals a downward trend. After reaching 79 in January 2024, the index saw a notable decline to 56.4 by January 2026. The reading bottomed out at 44.8 in May of that year, influenced by global geopolitical events. Although it has since rebounded to 51 in August, it remains significantly below the previous year’s levels, suggesting a more cautious and apprehensive consumer base.
Marvin Ellison, Lowe’s Chairman, President, and CEO, offered a nuanced perspective on their core customer: "Our core consumer is a middle-income homeowner. They have a strong personal balance sheet. They have real disposable income growth. Their house is getting older, and they have increased equity. But the caveat to all of that is that this consumer is being cautious." This description highlights that the underlying financial health of many homeowners is robust, yet psychological factors and economic anxieties are overriding their capacity or willingness to spend on discretionary home improvements.
Strategic Pricing and Promotional Strategies
In response to evolving market dynamics, retailers are adapting their pricing and promotional strategies. Lowe’s executives noted that competitors have engaged in aggressive discounting, particularly in seasonal categories such as outdoor living (patios, grills) and landscaping. This strategic discounting is partly a reflection of the financial strain consumers are experiencing, prompting retailers to offer incentives to drive sales.
However, Lowe’s has opted not to engage in a broad matching of these aggressive discounts. Ellison explained this decision, stating that such deep discounts are viewed as a "temporary solution that will drive sales but eat into profitability." He characterized these promotional activities as "transitory," attributing them to competitors potentially leveraging "tariff refund dollars" to boost top-line revenue. Ellison expressed confidence that the home improvement sector would revert to a more "rational and predictable promotional and price environment" in the latter half of the year. This suggests a strategic focus on maintaining margins rather than aggressively pursuing volume through deep price cuts.
The Enduring Impact of the "Lock-In Effect" and an Aging Housing Stock
A significant underlying factor contributing to the current state of the home improvement market is the unprecedentedly low U.S. housing turnover rate, currently hovering around 3.0%. This phenomenon, widely referred to as the "lock-in effect," stems from homeowners with historically low mortgage rates being disinclined to sell and purchase new homes at substantially higher borrowing costs.
The implications of this low mobility are far-reaching for companies like Home Depot and Lowe’s. Historically, high housing turnover has been a major catalyst for home improvement spending. New homeowners typically invest heavily in renovations, upgrades, and aesthetic improvements shortly after purchasing a property. Similarly, sellers often undertake repairs and enhancements to make their homes more attractive to potential buyers. A slowdown in home transactions thus directly translates to fewer large-scale renovation projects tied to the buying and selling cycle, curtailing a key source of demand for the industry.
However, this same "lock-in effect" is inadvertently creating a different kind of long-term remodeling opportunity. As homeowners who are unable or unwilling to move remain in their existing residences, the impetus to improve and update their current homes grows. Many of these homeowners possess substantial equity in their properties, which can be leveraged to finance renovation projects. This trend suggests a shift from transaction-driven remodeling to owner-occupied home enhancement.
Furthermore, the nation’s housing stock is progressively aging, presenting another sustained driver for the remodeling and home improvement sector. According to data from the National Association of Home Builders, the average age of owner-occupied homes in the U.S. has risen significantly, from 31 years in 2005 to approximately 42 years in 2024. Aging homes inherently require more frequent and substantial repairs, updates, and modernizations to maintain their structural integrity, functionality, and aesthetic appeal. This demographic trend points to a consistent, long-term demand for home improvement services and products, irrespective of broader economic fluctuations.
A Prolonged Period of Caution and Deferred Projects
While The Home Depot executives acknowledged the long-term opportunities presented by an aging housing stock and homeowners choosing to stay put, they reiterated that the short-term outlook remains characterized by uncertainty and volatility. Lowe’s executives similarly believe that the demand for larger remodeling projects is not vanishing but is rather being strategically deferred by consumers awaiting greater economic confidence.
"We know that this environment we’re in is cyclical. It goes down, but at some point it comes back up," Ellison remarked, conveying a sense of cyclicality inherent in the home improvement market.
Executives at both major retailers indicated that demand levels observed in the first half of the year are likely to persist through the remainder of 2024. However, a more cautious forecast comes from Harvard University’s Joint Center for Housing Studies. Their recent report, utilizing the Leading Indicator of Remodeling Activity (LIRA) model, projects a further slowdown in remodeling spending through mid-2027. The report forecasts that annual growth in home improvement and repair spending will decelerate to a modest 0.5% year-over-year by the second quarter of 2027, marking a significant cooling of the market.
This projected slowdown is supported by indicators such as flattened permitting activity and retail sales of building products, which collectively suggest a cooling of actual renovation activity. The Harvard report specifically attributes this deceleration to several key factors, including rising costs for materials and labor, coupled with the persistent impact of high interest rates and reduced consumer confidence. "Until home sales rebound from current low levels, remodeling expenditures are likely to stay at this pace," the report concludes, reinforcing the interconnectedness of the housing market and the broader home improvement sector.
