Home-improvement stocks are pricing the housing rebound before homeowners return
Home Depot and Lowe’s are being valued for lower rates and a housing thaw that have not yet translated into broad homeowner spending. The Aug. 18 housing data and Aug. 19-20 earnings reports will test whether maintenance demand can become a genuine remodel recovery.
The market is treating home-improvement stocks as early-cycle housing trades, but the homeowners who would validate that trade have not come back yet. Home Depot and Lowe’s are still seeing the kind of demand that keeps a repair-and-maintenance business stable, not the turnover-driven remodel surge that would justify a full housing rebound narrative. Pending sales and existing-home transactions remain weak, while both retailers’ recent results point to modest sales growth and continued reliance on professionals, minor repairs, and other defensive pockets. That makes the coming data cluster unusually important: housing indicators arrive Aug. 18, Home Depot reports Aug. 19, and Lowe’s follows Aug. 20.
The contrarian case starts with a simple mismatch between what investors are anticipating and what homeowners are doing. NAR’s pending-home-sales index fell 5.4% in June to 72.5, while existing-home sales slipped to a 4.06 million annualized pace in July. That remains well below the roughly 5.2 million level described as historically normal. When homes are not changing hands, the spending attached to those transactions tends to disappear with them: kitchens and bathrooms are less likely to be renovated before a sale, buyers are not immediately updating new properties, and contractors have fewer turnover-related projects to bid on. Lower rates may eventually loosen that gridlock, but the transaction data still says the thaw is prospective rather than present.
The operational evidence is similarly restrained. Lowe’s first-quarter sales rose only 1.3%, and Home Depot’s February fourth-quarter comparable sales increased just 0.4%. Those figures do not describe a broad discretionary-repair rebound. They describe businesses absorbing a slow housing market by leaning on professional customers, minor repairs, appliances, online sales, and home services. That mix can cushion earnings, and it is a legitimate strength, but it is not the same as homeowners restarting large projects. The risk for shareholders is that defensive demand gets mistaken for the first leg of a cyclical acceleration.
Valuation leaves less room for that distinction to be ignored. Home Depot trades at a 23.26 P/E against 3.2% revenue growth and a 4.6% decline in EPS, while Lowe’s trades at 17.62 times earnings against 3.1% revenue growth and a 3.1% EPS decline. Lowe’s has suffered more in the market this year, down 11.5% versus Home Depot’s 2.0% decline, but that underperformance does not automatically make it the cleaner recovery trade. Both companies still require a meaningful improvement in project demand to turn low-single-digit sales growth and falling EPS into a convincing earnings inflection. Home Depot’s premium reflects its scale and professional exposure, but it also means investors are paying more today for a recovery that management still describes as future tense.
The comparison with other housing-linked names reinforces the point. D.R. Horton trades at 13.95 times earnings, with revenue down 6.9% and EPS down 19.5%, a valuation that more plainly reflects current housing weakness. Masco is at 18.00 times earnings and has delivered 2.9% EPS growth despite a 3.4% revenue decline, while its shares are up 15.3% year to date. Those different market reactions suggest investors are already separating resilient or efficiently managed exposure from the more uncertain volume recovery. Home Depot and Lowe’s are not being priced like distressed housing businesses; they are being priced as quality retailers waiting for the cycle to improve. That is precisely why the absence of homeowner participation matters.
Home Depot’s own strategic framing makes the hurdle explicit. Its Market Recovery Case assumes momentum arrives with more housing activity and larger-project spending driven by pent-up demand. Lowe’s has maintained fiscal 2026 comparable-sales guidance of flat to up 2% and EPS guidance of $12.25 to $12.75, while management continues to describe the housing backdrop as challenging. These are sensible positions for companies navigating uncertainty, but they do not amount to a confirmed recovery. The market can front-run the eventual turn; it cannot make a weak pending-sales report into a remodel cycle by anticipation alone.
Yes, the bulls can point to professional contractors and builders as a meaningful cushion. Home Depot has repeatedly emphasized resilient pro demand, while Lowe’s has highlighted its Pro business, appliances, online channel, and home services. Lower rates could also release pent-up demand faster than the transaction data currently suggests, particularly if affordability improves enough to restart turnover. But those arguments support a recovery option, not proof that the recovery has begun. The pro channel may keep the floor under sales, while the missing homeowner and turnover demand keeps the ceiling on growth.
The 2020 comparison shows why the distinction matters. Lowe’s delivered a 34.2% same-store-sales gain that year, and Home Depot posted a 23.4% comparable-sales increase as consumers stuck at home poured money into do-it-yourself projects. Lowe’s outpaced Home Depot initially because its greater DIY exposure matched that unusual demand shock. Today’s hoped-for catalyst is the reverse: not a captive homeowner suddenly spending, but a mobile homeowner buying or selling, hiring contractors, and taking on larger projects after years of delay. The prior surge proves these retailers can capture a powerful demand wave; it does not prove that lower rates will recreate one on schedule.
That is why the Aug. 18 housing releases should be read alongside the Aug. 19 and Aug. 20 earnings reports, rather than treated as separate events. Permits, starts, and other new-residential-construction data can indicate whether the broader cycle is improving, but the retailers must show that activity is reaching the repair, remodel, and contractor channels. A small improvement in housing sentiment would not be enough. The more meaningful evidence would be stronger large-project demand, better contractor activity, and a shift in commentary away from maintenance and toward discretionary work. Until then, the stocks remain leveraged to a housing recovery that exists more clearly in expectations than in household behavior.
We are not arguing that Home Depot or Lowe’s cannot work if rates fall. We are arguing that the market is asking investors to pay for the second stage of the recovery before the first stage—actual homeowner and housing turnover activity—has appeared. Home Depot’s 23.26 P/E and Lowe’s 17.62 P/E can be justified by stronger future demand, but their recent revenue growth and declining EPS show that future is not yet visible in the current numbers.
What would change our mind is evidence that the housing data is turning at the same time the retailers report a real pickup in larger projects and contractor demand. If Aug. 18 is weak and the earnings reports again emphasize minor repairs and pro-channel resilience, the contrarian risk is clear: deferred maintenance may support the floor, but it will not provide the rebound investors are already trying to price.
Our take, not advice. This is opinion commentary — informational only, not personalized investment recommendations. Markets carry risk. Do your own research and consider your own situation before any trade.
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