The great American home renovation boom that powered the pandemic economy has officially frozen over. With housing activity at nearly 40-year lows and mortgage rates stubbornly stuck above 6%, the two giants of home improvement retail—Home Depot and Lowe's—are navigating their most challenging environment in a generation. But as 2026 unfolds, Wall Street analysts are increasingly picking sides, and Lowe's is emerging as the surprising favorite.

Both stocks have struggled in recent months. Home Depot shares have declined approximately 11% from their 2025 peak, while Lowe's has fared modestly better with a 2.6% decline. The divergence reflects a growing consensus that Lowe's execution, efficiency gains, and strategic positioning may give it an edge in a prolonged housing downturn.

The Housing Market's Chokehold on Home Improvement

The fundamental challenge facing both retailers is simple: people aren't moving. Existing home sales have cratered to levels not seen since the 1980s, and home sales are historically the primary driver of renovation spending. New homeowners fix up their purchases. Sellers renovate to boost listing prices. Without that churn, the home improvement industry is flying on one engine.

"Housing turnover is the lifeblood of this industry," explained Jennifer Koss, a retail analyst at Barclays. "When you buy a house, you're almost certainly going to spend money at Home Depot or Lowe's within the first year. Paint, fixtures, appliances, landscaping—it adds up. Without that buyer activity, you're relying on maintenance spending from existing homeowners, which is a much smaller addressable market."

Home Depot's management has been candid about the headwinds. In its most recent strategic update, the company acknowledged that "the softness in housing turnover remains a notable drag" and that "consumer behavior is still pressured by affordability constraints."

Home Depot's Cautious 2026 Outlook

Home Depot's preliminary fiscal 2026 guidance painted a picture of a company playing defense rather than offense. Management is forecasting:

  • Comparable sales: Flat to 2% growth
  • Total sales growth: 2.5% to 4.5%
  • Operating margins: 12.4% to 12.6%
  • Earnings per share: Flat to 4% growth

The company's base case assumes the home improvement market overall will range between negative 1% and positive 1% growth—essentially a stagnant environment where market share becomes the primary battleground.

"Home Depot is the bigger player with deeper moats, but that size becomes a disadvantage when the overall market isn't growing," said Marcus Webb, a portfolio manager at Ridgeline Capital. "It's harder to move the needle when you're already the dominant player in a flat-to-declining market."

Why Wall Street Is Favoring Lowe's

Lowe's has emerged as the preferred name among analysts for several reasons:

1. Superior Recent Execution

Lowe's third-quarter results showed encouraging momentum. Total sales rose 3% year-over-year to $20.8 billion, with comparable sales up 0.4%—modest growth, but growth nonetheless. More impressively, the company delivered positive comps in 10 of 14 product categories, including strength in appliances, electrical, and flooring.

Online sales surged 11.4%, suggesting Lowe's digital investments are paying dividends. Home services revenue also posted double-digit growth as homeowners who can't afford to move are instead investing in maintaining and upgrading their current properties.

2. Pro Segment Traction

Lowe's has historically lagged Home Depot in serving professional contractors—a lucrative, high-margin customer segment. But recent initiatives are showing results. Pro sales have improved, and Lowe's strategy to better serve this customer base is gaining traction across both professional and DIY segments.

3. Improving Operational Efficiency

Gross margins at Lowe's have expanded meaningfully, reflecting better inventory management and reduced markdowns. While operating income still declined slightly in Q3, the margin trajectory is improving—a sign that management's efficiency initiatives are bearing fruit.

The Case for Home Depot

To be fair, Home Depot retains significant advantages that shouldn't be dismissed:

  • Scale and brand strength: Home Depot is the larger retailer with deeper customer relationships, particularly among professional contractors.
  • Pro ecosystem: The company's entrenched pro business, enhanced by recent acquisitions, provides a competitive moat that Lowe's is still trying to match.
  • Dividend track record: Home Depot offers a 2.7% dividend yield and has raised its payout for 16 consecutive years. The company's dividend is well-covered by free cash flow.

Analysts rate Home Depot as a "Buy" with an average price target of $402 per share, implying roughly 15% upside. For Lowe's, the consensus is also "Buy" with a $277 target, suggesting 14% upside potential. The difference comes down to conviction levels and risk tolerance.

When Will the Thaw Come?

Both companies are essentially betting that the housing market will eventually normalize. The question is when, and whether investors have the patience to wait.

Mortgage rates would likely need to fall below 5.5%—and perhaps closer to 5%—to meaningfully unlock existing home sales. With the Federal Reserve taking a cautious approach to rate cuts in 2026, that relief may not arrive until late this year or even 2027.

"We're in a multi-year housing adjustment. The home improvement sector needs to right-size expectations and find ways to grow even without a housing recovery. The companies that can do that will be the winners."

— Jennifer Koss, Barclays retail analyst

What Investors Should Consider

For investors weighing the two stocks, the decision comes down to investment thesis:

  • Choose Home Depot if: You want exposure to the dominant player with a strong dividend, and you're willing to wait for a housing recovery to drive upside.
  • Choose Lowe's if: You believe execution and operational improvement can drive returns even in a challenging environment, and you're comfortable with slightly higher near-term risk.

Both stocks offer value in a sector that has been beaten down by macroeconomic headwinds. But with Wall Street increasingly favoring Lowe's momentum and execution, the underdog may be the smarter bet for 2026.