Despite downturn, home repair-and-remodel stocks have something to build on

Repair-and-remodel stocks appear mispriced because the housing slowdown reflects constrained supply and delayed renovation demand more than permanently weak structural demand.

• Housing turnover has fallen to about 4 million homes annually, down 30% from the 2021 peak and comparable with levels during the global financial crisis.
• Mortgage rates rose from about 3% to nearly 7% in 2022, while current 30-year mortgage rates are typically 6% to 7%, discouraging homeowners from moving.
• Owners who locked in mortgage rates near 3% may face payments roughly $1,000 higher if they move, leaving them with both an incentive to stay and disposable cash to maintain or upgrade existing homes.
• Renovation demand was pulled forward by pandemic lockdowns in 2020 and 2021, as remote work encouraged relocations, home offices and broader home-improvement projects; the resulting demand glut now appears to be fading.
• R&R stocks are trading at what the author considers trough valuations, with consensus estimates assuming flat volumes for several years, although stagflation could further pressure share prices.

Takeaway: Investors should view the sector’s weakness as potentially temporary and consider the long-term upside attractive relative to near-term risks, while recognizing that the timing of a housing-cycle recovery remains uncertain.