How the Building Product Cycle Has Shifted

Housing dynamics from 2022 to 2025 feel a bit like the concept of the “Nordic Cycle,” where bathers warm their bodies in a sauna and then plunge into extremely cold water. After feeling overheated, the initial plunge into ice-cold water feels refreshing, even relieving. But there is a catch: If you remain in the cold plunge too long, positive effects are reversed, and the cold begins to hurt. Too cold for too long, your body can be damaged.

In a similar way, after the red-hot post-COVID housing market of 2021, the industry felt a bit of initial relief from tightening mortgage rates in 2022 through the first half of 2024. Supply chains normalized, prices stabilized, and labor could be found. Best of all, new-home sales growth was still warm despite a cold resale market. The cooling: Since the summer of 2024, the industry feels different. Last summer, the industry cooling started to hurt, exasperated by several consumer finance issues.

Exhausted Pandemic-Era Savings

When rate hikes began, U.S. consumers had $2.1 trillion of extra savings stored, which is equal to nearly all the growth in consumer spending from 2022 to 2024. A bit like wearing an extra layer in the cold, savings acts as a buffer for consumers amid financial uncertainty and rate volatility.

By last summer, consumers had fully depleted their excess savings and have about $300 billion less than pre-2020 levels (roughly $2,300 less per household than before the pandemic).

Debt-Service Payment/Real Disposable Income

These are no longer a tailwind either. For the prior four years, consumers benefited from all-time low debt-service payments versus their disposable personal income. Fast-forward to 2025, and the cushion of low debt payments versus disposable income has largely worn off. Households are inherently less immune to financial challenges, which is a tough time for sequentially higher mortgage rates along with 6% higher costs of building materials.

Mobility, Lock-In Effect, Remodeling, and Mortgage Rates

No human can forecast mortgage rates with precision, but we do have a good sense of the impact rates will have in 2025. We should be planning for a situation where:

• Homeowners move far less than prior years (at least in the first half of 2025).
• Lock-in remodels begin to grow faster than “move-driven” remodels—this is good for categories such as composite decking or windows, which target equity- rich homeowners who are not planning to move soon.
• Home equity extraction becomes the first “signal” of recovery, whenever that is. Growth, when it occurs, will look faster than many expect versus a very low base.
• People move less often in 2020s versus prior generations. Since 2020, owners have moved 55% less frequently than 2000 levels. Renters move less often, too.
• Why people move less is complicated. About one-third of the decline in the move rate is due to demographics (people move less often as they age), but the remainder is due to behavioral differences (or, potentially, less dynamism between markets, reward for moving, and opportunity). Why does this matter? Because when people hate their homes, they have three options: move to a home that fits their needs better; remodel their existing home; or do nothing and let the home eventually go into disrepair.

Twenty-five years ago, a typical homeowner was four times more likely to move versus doing a major remodel. Fast-forward to today, and homeowners are nearly just as likely to stay put and remodel versus move to a different home.

Enter the Lock-In Effect

This is when homeowners have a mortgage that is at least 200 basis points lower than current rates (they are “locked in” to their lower rate and face payment shock from higher rates if they chose to move). Estimates vary, but based on research from the Federal Housing Finance Agency, a homeowner with a mortgage is about 50% less likely to move once mortgage rates reach 200 basis points above their old rate. That is on top of the already low mobility rate due to other behavioral reasons.

The lock-in effect has prevented about 1.7 million transactions since 2022 and has increased home prices by over 7% due to fewer listings. Homeowners with paid-off homes with lots of equity still move, but those with a mortgage effectively freeze, moving only when major life events surrounding family or work require a change.

The lock-in effect also has two knock-on effects on housing:

• Reduced supply of for-sale listings. In some markets, listings are growing, particularly listings stemming from investors who have a sense of “toppy” markets.
• Upward pressure on home prices.

Home Equity Extract and Rates

Home equity growth has expanded by $15 trillion in the past five years. That’s 2.5 times more than the home equity drawdown during the Great Financial Crisis, occurring in half the amount of time. Yet the equity has largely been untapped. To be clear, we don’t expect homeowners to extract all the equity, just to revert to historical norms of equity extraction as rates stabilize. There is some evidence this is ahead, with major implications to remodeling when it happens.

U.S. homeowners have just started to touch their home equity, and a shift is occurring. After 13 years of declines, home equity lines of credit started rebounding in 2024, despite high rates. The growth is entirely driven by homeowners with 760 or better credit scores who are less risky borrowers—credit limits have increased, but equity not yet extracted.

In our published research, Zonda’s analysis finds that home equity extraction was four times more sensitive to rate declines than future moves. When rates begin to moderate, the thaw will show up as equity extraction first.

The Battle for the Complex Pro

Home Depot surprised investors one year ago when it discussed its target of gaining share among the “Complex Pro.” The Complex Pro is an entirely different breed of professional, who typically touch larger projects, such as design-build professionals, builders, and roofers rather than a local handyman and DIYers. Shortly thereafter, Home Depot acquired SRS Distribution, a major roofing distributor that was best-in-class. SRS was Home Depot’s license to go after the Complex Pro, and expand into an entirely different mix of construction.

The Complex Pro is more important than it seems. These professionals have direct influence on the products and brands selected—in some cases even holding veto power over homeowner or builder specifications. I know of several major brands that lost market share because the Complex Pros in a particular region preferred to use a different brand, and other parties didn’t want to delay the project or risk losing the contractor.

When market growth resumes, there is a compelling case the influence of these Complex Pro contractors will become even more impactful. Home-equity-funded remodel projects are 10 times more likely to be complex, with multiple parts of the home improved and requiring a general contractor with project management, while production builders are gaining share of new construction.

Due to challenging demographics, the value of the Complex Pro will likely be stronger too versus prior cycles (from 2025 to 2030, experienced pro contractors will age out and retire at roughly 15% faster than whatever else the industry experiences). This means the influence of high competence contractors who can coordinate various aspects of a project will become even more valuable.