SKN | Citi Identifies Persistent Housing Constraints Behind Home Improvement Sector Weakness

Citi is maintaining a cautious view of the U.S. home improvement market, identifying elevated borrowing costs, housing affordability and weaker project activity as key reasons the sector’s stocks have struggled in 2026. The bank’s assessment follows its analysts’ participation in the HIRI Home Improvement Insights Summit, where industry participants broadly expected demand to remain subdued over the coming year.

Citi Sees Interest Rates as the Primary Constraint

For Citi, the most important factor weighing on home improvement activity remains the cost of financing. Higher mortgage rates and weak housing affordability are limiting both mobility and homeowners’ willingness to undertake larger projects, creating a difficult operating environment for companies serving the home improvement market.

The bank noted that mortgage rates around the 5% level could represent an important psychological threshold for homeowners considering a move. The existing mortgage structure makes the issue particularly persistent: approximately 80% of homeowners with mortgages have rates below 6%, while half have rates below 4%.

This creates a significant lock-in effect. Homeowners with unusually attractive existing mortgages have less incentive to move, reducing transaction activity and potentially limiting the broader spending opportunities associated with buying, selling and renovating homes.

Project Delays Add Pressure to Industry Demand

Citi’s analysis also highlights a deterioration in project execution. A homeowner survey found that roughly one-third of projects are being delayed or cancelled, while a separate contractor survey showed that 60% of professionals had experienced at least one cancelled project.

For Citi, these figures indicate that affordability pressures are translating into actual changes in consumer behavior rather than remaining a theoretical concern. Delayed projects can affect demand for materials, equipment and services across the home improvement ecosystem.

Citi Sees Limited Near-Term Growth Visibility

The bank’s assessment is not entirely negative. Citi noted that resilient consumers, a stable labor market and household wealth are providing support for home improvement demand. Those factors may help prevent a sharper contraction even while financing conditions remain restrictive.

However, the combination of elevated rates, affordability challenges, energy costs and geopolitical uncertainty limits Citi’s visibility on a meaningful recovery. The result is a market where consumer resilience is offsetting, rather than eliminating, structural constraints.

What Citi’s View Means for the Banking and Investment Landscape

For sophisticated investors, Citi’s analysis underscores the importance of distinguishing between consumer resilience and genuine demand acceleration. A stable consumer is not necessarily a growing consumer, particularly when financing costs discourage major housing decisions and projects.

For Citi, monitoring mortgage rates, project cancellation trends and housing affordability will remain important to assessing the earnings environment for companies exposed to home improvement spending. Until those constraints ease, the bank’s analysis suggests that the sector may continue to face limited growth visibility rather than a rapid normalization in demand.

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