2026 in a nutshell: Picture the aspect of your home you are most irritated with and have been postponing improving. Now imagine your most wealthy friend deciding to improve that part of their home. Meanwhile, you begin searching for a new home or a home equity line for a 2027 project. That is the essence of what we expect in 2026 –the beginning of a thaw in home investment but led by ‘top income’ households who have been postponing projects but are now moving forward.
Several issues are occurring:
Deferred moves and home improvement. Homeowners historically moved or did a major remodel every 11 years but have postponed improving their housing the past three years due to the “mortgage rate lock-in effect.” Estimates vary, but NY Federal Reserve data suggests that roughly 2-times more younger households (under 50) have been deferring moving, but plan on moving as soon as possible, compared with levels observed pre-2022 rate hikes. History tells us deferral-then-rebound is very real. A similar deferral occurred the last time the Fed fought inflation from 1979-1983, ultimately leading to a wave of deferred moves and remodels that gave rise to a social phenomenon of “moving and remodeling.”
A plausible path to a bit more stability. 2025 was unique because of the surge of “uncertainty” among high-income households. When people are worried about losing their job, they postpone major moves or other spending. Looking ahead, by mid-2026 we see a case for “slightly less instability.” We will know exactly how Sector 232 duties impact the industry, there will be fewer questions on who the next Fed chairman might be, and less general anxiety about top-income households undertaking deferred projects.
A path to lower rates. For the first time in several years, there is a reasonable case for lower mortgage rates, driven in part by lower risk premiums for mortgage rates vs the 10-year treasury. We believe this leads to two key events: 1) cash-out equity extraction (vs extremely low levels) – which we believe should be roughly 2x higher than current levels. About 50% of those dollars will be deployed on improving housing. 2) The first wave of ‘lock-in effect’ moves, as mortgage rates approach 6%.
At the same time, we anticipate a “battle for pro contractors” heating up between major channels like Home Depot, QXO, Builders First Source, and others. We expect builders and remodelers to shift more of their purchases to manufacturer-direct and e-commerce. This means that distribution will continue to evolve as the next cycle emerges. Again, it’s not lost on us that 40 years ago, the birth of Home Depot occurred during a period of postponed moves and remodels, and the macro similarities to today are notable.
By midyear 2026, our forecast is for building product spending on remodeling to grow faster than new construction spending, simply due to timing of soft second half 2025 volume on early 2026 manufacturer orders.
