Citi Predicts Stagnant 2026 Home Improvement Demand Due to High Mortgage Rates

The U.S. home improvement industry faces a flat demand outlook for the next 12 months as macroeconomic headwinds and project cancellations weigh on the sector, according to a report from Citi analysts. This stagnation reflects a cooling in discretionary spending, as homeowners remain reluctant to move or renovate in the current interest rate environment.

"Its strategy centres on augmenting employees rather than replacing them, with potential efficiency gains also available in contractors' back-office operations," said the technology chief at Lowe's in a recent statement regarding industry operational shifts.

The Lock-In Effect and Project Delays

Citi's research highlights a psychological and financial barrier for homeowners. Approximately 80% of mortgage holders currently have interest rates below 6%, with half of that group holding rates below 4%. This lock-in effect discourages homeowners from selling their properties to upgrade, which historically serves as a primary driver for home improvement spending.

This hesitancy is translating into project instability for contractors. According to the survey data cited by Citi:

• Roughly one-third of planned home improvement projects are currently being delayed or cancelled.
• 60% of surveyed contractors reported experiencing at least one project cancellation, signaling a decline in consumer confidence and project feasibility.

Operational Pressures in the Sector

Major retailers are attempting to navigate the downturn by focusing on internal efficiencies and technology integration. By targeting back-office operations, companies like Lowe's are looking to maintain margins despite lower transaction volumes. The emphasis on augmenting employees reflects an industry trend of using automation to support human labor, aiming to lower costs for both the retailer and the professional contractors they serve.

Economic Context for Home Improvement

For the broader market, the health of the home improvement sector serves as a bellwether for consumer discretionary income. When interest rates remain elevated, the cost of financing large-scale renovations increases, leading many households to defer non-essential repairs or aesthetic upgrades. The current data suggests that the sector may continue to face headwinds as homeowners prioritize debt service over capital-intensive home improvements until there is a shift in the interest rate environment or a stabilization in the housing market.