Why Home Renovation Retailers Are a Safe Haven in Today’s High-Rate Economy

The U.S. housing market has entered a new era of resilience. While high interest rates and economic uncertainty have crimped new construction and home sales, one sector is thriving: home renovations. Sustained demand for repairs, upgrades, and modernization has made home improvement retailers and materials suppliers a defensive investment play in 2025. Here’s why investors should pay attention—and where to place their bets.

The Perfect Storm for Renovation Demand

The U.S. housing stock is aging. Nearly half of all homes were built before 1980, with a median age of 41 years. This has created a structural need for repairs, energy efficiency upgrades, and aesthetic modernization. Compounding this is a “locked” housing market: with mortgage rates near 7%, homeowners are staying put and investing in their existing properties. A Clever Real Estate poll found 63% of homeowners prefer remodeling over moving, driven by rising home values and the high cost of relocating.

The numbers are staggering. Home renovation spending is projected to hit $509 billion in 2025, a 6.4% upward revision from earlier estimates, while the Harvard Joint Center forecasts a $1 trillion annual market by 2027. Key drivers include kitchen/bathroom upgrades, outdoor living spaces, and energy-efficient systems like HVAC and insulation.

Why High Rates Aren’t Killing Demand

Conventional wisdom suggests high interest rates should suppress home-related spending. But this isn’t the case here. Homeowners are leveraging record-high equity—the average U.S. household has $350k in home equity—to fund renovations via HELOCs or home equity loans. These loans typically carry lower rates than mortgages, with current HELOC rates hovering around 4.5%.

Even large projects like kitchen remodels are still economically rational. A $20k kitchen upgrade can boost resale value by $15k–$20k, according to Remodeling magazine—a compelling ROI in a stagnant housing market. Meanwhile, renters stuck in tight supply/demand conditions are also boosting demand for DIY tools and materials, as they customize their rentals or prepare for homeownership.

The Sector’s Hidden Winners

The home improvement market isn’t a monolith. Investors should focus on companies with supply chain resilience and innovation in cost management.

1. Diversified Retailers: Home Depot (HD) and Lowe’s (LOW)
   These giants dominate the market with 38% combined U.S. market share. Their scale allows them to negotiate better terms with suppliers and absorb tariff-related costs. Both have invested in automation (e.g., AI-driven inventory systems) and vertical integration (e.g., HD’s partnership with insulation maker Johns Manville).

Additionally, their hybrid retail/digital models are winning: online sales now account for 25% of HD’s business, with same-day delivery options reducing reliance on volatile labor markets.

1. Materials Suppliers: USG Corp (USG) and Louisiana-Pacific (LPX)
   The demand for energy-efficient materials—like LPX’s engineered wood for insulation or USG’s drywall with moisture-resistant coatings—is soaring. These firms benefit from rising material prices (gypsum up 8% YTD) and the shift toward “build it yourself” projects, where consumers prioritize cost-effective, easy-to-install products.

Companies with domestic production capacity or diversified sourcing networks (e.g., USG’s 18 U.S. plants) are best positioned to weather tariff volatility.

1. Smart Tech Enablers: Schlage (owned by Allegion) and Vivint Smart Home (VVNT)
   The smart home segment is growing at 12% annually, driven by demand for security systems, automated lighting, and climate control. Integrating these systems into renovations is becoming standard, creating recurring revenue streams for suppliers.

Navigating the Risks

No investment is risk-free. Key threats include:
- Labor shortages: Contractors are struggling to find skilled workers, pushing costs up.
- Recession risks: A downturn could dampen discretionary spending.
- Tariff wars: Ongoing disputes with Canada and China could inflate material costs further.

But the sector’s defensive profile mitigates these risks. Renovations are less sensitive to economic cycles than new home construction, and demand for basic repairs (leaks, electrical upgrades) remains inelastic.

The Bottom Line: Buy Now, Build Later

The home renovation sector is a rare bright spot in today’s high-rate environment. With an aging housing stock, rising equity, and a cultural shift toward “fix it, don’t sell it,” this trend is structural—not cyclical.

Investors should prioritize companies with diversified supply chains, innovative cost controls, and exposure to energy efficiency/smart tech. Retailers like HD and LOW, along with materials firms USG and LPX, offer the best combination of growth and stability.

The clock is ticking. With renovation spending set to hit $509 billion this year—and a $1 trillion market within three years—now is the time to stake your claim in this resilient sector.

The numbers don’t lie. Invest now—or risk missing the next wave of home improvement demand.