Steadily rising mortgage rates, now above 7.5%, are forcing homeowners with low existing rates to stay put, effectively locking them out of the housing market. Despite having record home equity, many find traditional renovation financing like Home Equity Lines of Credit (HELOCs) too expensive, leading to a sharp decline in big-ticket home improvement projects at major retailers and prompting homeowners to defer major upgrades in favor of essential maintenance.
The dream of a new home or even a revamped current one is increasingly out of reach for many Americans. With mortgage rates persistently high, homeowners who secured advantageous rates years ago—often in the 2-3% range—find themselves effectively "trapped" in their current properties. The prospect of moving means relinquishing these low rates for today’s significantly higher ones, creating a powerful disincentive to transact in the housing market.
This immobility isn't just affecting buying and selling; it's also stifling home improvement. Traditionally, tools like home equity loans or home equity lines of credit (HELOCs) were homeowners’ go-to for financing renovations. However, even these options are now becoming prohibitively expensive. Experts note that while there was a nearly 20% increase in second mortgages or HELOC originations in the second quarter, much of this capital isn't funding renovations but rather being used by homeowners to stay afloat amidst rising costs elsewhere.
Despite this financial squeeze, Americans are sitting on a record amount of home equity, which remains largely untapped or too costly to access for its intended purpose. Tom Graff, Chief Investment Officer of Facet, a financial planning and wealth management firm, highlights the broader economic implications: "As rates keep rising, tapping into home equity will become more and more expensive for homeowners. This will generally hold back consumer spending, but it will hit big-ticket items, like home renovations, particularly hard."
Graff explains that this slowdown in consumer spending is an intentional outcome of the Federal Reserve's interest rate hikes, designed to combat inflation. However, he warns of the risks to a consumer-driven economy, noting that consumer spending is already lagging behind as a driver of GDP growth. Compounding this, the economy faces challenges from a soft jobs market, declining wage growth, high gas and diesel prices, and net negative immigration. Currently, spending on data centers appears to be the primary engine "holding the economy together," according to Graff, making it vulnerable should this sector experience even a mild slowdown.
This environment is fundamentally reshaping homeowner behavior. Angie Hicks, co-founder and chief customer officer of Angi (a home services marketplace), observes that homeowners are now extending their stay in current residences by approximately five years longer than originally planned. She emphasizes that the era of 2-3% mortgage rates is gone, and the current 6-7% range is likely the new normal, prompting a desire to transform current homes into "forever homes."
However, this desire is clashing with financial realities. Rather than embarking on major kitchen remodels, homeowners are prioritizing essential maintenance, such as furnace tune-ups. Hicks notes, "When inflation kicks in or there is a shock to the economy, people don't stop spending on their homes, they just reprioritize what they are spending on, for instance, a water heater instead of a new deck." Angi's data supports this, showing 60% of consumers are now deferring large projects and focusing on upkeep.
This shift is vividly reflected in retail data. Philip Odelfelt, CEO of Datavations, a retail analytics firm, reports a significant drop in big-ticket renovation purchases at Home Depot and Lowe's. From September 2025 through August 2026, major renovation categories saw declines ranging from 10% to 28% compared to the previous year. Lowe's CFO, Brandon Sink, has also acknowledged that affordability concerns are leading consumers to prioritize essential repairs and maintenance over larger discretionary projects.
The impact is most pronounced on higher-cost items. Sales of shower stalls, kits, and enclosures plummeted 21% (with units down 28%), and bathtubs fell 10% (units down 12%). In contrast, lower-ticket items, like pull-down kitchen faucets with an average price of $147, experienced only a modest 3% decline. Odelfelt emphasizes this clear "gradient" where renovation projects become more vulnerable to deferral as their cost increases.
Even these figures might understate the true pullback. Datavations suggests that after normalizing for assortment changes, per-location productivity is weakening across nearly all renovation categories. As Tom Graff adds, "Retailers are adding SKUs and distribution, which masks the fact that the customer walking in with a renovation project is increasingly absent."
Mark Ratchford, a business school professor at Tulane University specializing in consumer behavior related to home equity, articulates the common homeowner dilemma: "I need to remodel my kitchen, but when I look at the price and the interest rates, I can't afford that. I'll just wait, that is the whole housing market now." This sentiment extends to the fixer-upper market, which has largely been squashed due to the prohibitive costs of borrowing and renovation. Ratchford also points out that when homeowners do tap into HELOCs, it's often to cover existing credit card debt rather than fund home improvements.
Andre Kazimierski, co-owner and president of HomeHero Roofing, confirms this trend firsthand. Roof replacements, window installations, and HVAC upgrades—all essential but costly—are traditionally financed via home equity. With this avenue now constrained, a decline in crucial major renovations is anticipated. Kazimierski warns of potentially severe long-term consequences: "As each year passes we seem to encounter more and more extreme weather, so lots of homes are dealing with things like high winds, heavy rain, and extreme temperatures. If necessary renovations are put off... that could leave homes even more vulnerable to increasingly volatile weather, potentially resulting in avoidable, costly damage."
The broader real estate market also faces predictable damage. Genine Fallon, managing director of capital formation and investor relations at Praxis Rock Advisors, concludes that when equity access becomes expensive, discretionary capital projects are deferred, leading to "less turnover, less renovation spend, and a market where existing owners simply hold rather than transact or improve."
—Reported with contributions from Diana Olick.
