Still Under Construction; Downgrade to Peer Perform

Research evidence excerpt

Still Under Construction; Downgrade to Peer Perform

June 23, 2026

(-) Record Home Equity, But Prices Need to Come Down. While the Federal Reserve estimates that there is $35 trillion

in US home equity, the market is not clearing, with EHS at multi-decade lows. HD has noted on several occasions that

prices need to come down for the market to unlock. We are seeing that in the most overheated markets like Miami,

Dallas, and Austin. While this is likely healthy, it will result in a period of the housing market slowing before it speeds

up again. Accelerating wage growth could also help with affordability, but that remains range-bound.

(-) EHS Results from May Unusually Strong; Ex-Seasonal Adjustment Was Flat MoM. In one of the most constructive

data points on the housing market, we saw EHS come in at 4.17mm vs. consensus of 4.06mm, with trends significantly

better than in the preceding months. One month doesn't change the trend, and there was a significant seasonal

adjustment here. Click here for our JCHS Update and click here for our May EHS Deep Dive.

(-) LOW at Leverage Target & QXO Still Digesting Several Deals; Opens Lane for HD To Be More Aggressive

on Transactions. HD has more balance sheet capacity than LOW, which is already above its leverage target and

QXO (covered by Wolfe's Trevor Allinson), has been under pressure post the Top Build deal. With the most logical

consolidators largely unable to pursue additional deals, this will give HD more room to be the primary consolidator.

While HD has said they will prioritize their credit rating, doing so would be only marginally beneficial (tens of basis

points in borrowing costs) if they maintain the current A S&P rating. To be fair, it could allow HD to get a better price