The Building Products & Services industry gave back its first-half gains in the third quarter as higher interest rates and energy costs returned to the center of the story. Housing-linked businesses remain the weakest over the year, while data center work kept contractor backlogs growing.
Valuations held up better than share prices. Most segments still trade at higher multiples than a year ago, and the largest buyers in the space kept paying for scale.
The question for the coming months is whether commercial demand can keep carrying the industry while housing waits for relief on rates.
All five segment indices fell in the third quarter, while the S&P 500 rose 2.9% to finish near its high for the year. Higher borrowing costs were a common thread. The Federal Reserve raised its benchmark rate in September for the first time since 2023, citing inflation driven by higher energy prices.1 The 30-year mortgage rate climbed to an average of 6.86% in September.2
Repair & Retail had the weakest quarter, falling 16.6% to end at its lowest point of the past year. The Home Depot and Lowe's both reported that small repair jobs held up while larger, financed renovations stayed under pressure.3 Harvard's Joint Center for Housing Studies projects remodeling spending growth will slow to 0.5% by mid-2027.4 It expects spending to stay at that pace until home sales recover.4
Commercial Construction made the largest reversal on the chart. The segment was up more than 17% from the start of the chart in May. A 13.4% quarterly decline left it 5.3% below where it started. Demand held up. Associated Builders and Contractors (ABC), a construction trade group, reported that contractor backlog rose for a second straight month in September on data center projects.5 Profitability is the concern: more than one in four contractors expect margins to shrink, and ABC's chief economist pointed to rising materials, labor and borrowing costs.5
Building Products Distribution held up best. It fell 8.5% in the quarter but is the only segment still above its level of a year ago. Distributors faced the same soft housing market, with builder confidence at a one-year low in September.6 Building Products Manufacturing and Residential Construction also fell by double digits, leaving both below year-ago levels.
Valuations moved far less than share prices. Commercial Construction's multiple rose to 9.3x even as its stock index fell, so investors did not mark down how they value its earnings. Distribution, at 16.0x, remains the highest in the industry and well above its level a year ago. Repair & Retail is the exception. Its multiple drifted lower all quarter to 12.0x, its lowest point of the year and down from 15.1x a year ago.
The Dinan Building Products & Services Index† offers a closer look at publicly traded middle-market companies in the industry. It fell 6.9% in the quarter, a smaller decline than any of the five segment indices. Over five years, the index is up 4.7%, compared with 72.9% for the S&P 500. For a middle-market owner, the public benchmark for companies like theirs has moved sideways rather than broken down.
The index's EV/EBITDA multiple eased to 11.4x, which is above three of the five segment multiples. That is within its range since 2024 and well above its 2022 low. The S&P 500 multiple held at 18.2x.
Private deal activity tells a similar story. Deal counts held steady but low, so buyers appear selective rather than absent. Both signals point to stable values for established businesses in a slower market.
The industry recorded 179 transactions in the third quarter, one fewer than in the second quarter and down from 252 a year ago. The last two quarters are the lowest on the chart. PwC found that higher borrowing costs are slowing leveraged deals in engineering and construction, while data center work stays active.7
The quarter's largest deals show strategic buyers and long-term owners paying for scale even as public prices fell.
QXO, a fast-growing building products distributor, acquired TopBuild, an insulation installer and distributor, for $17.0 billion. QXO said the deal makes it the second-largest publicly traded building products distributor in North America and adds exposure to data center projects.8
Martin Marietta, a producer of crushed stone and other construction aggregates, acquired Lhoist North America, a lime and limestone producer, for $13.5 billion. The company said the deal makes it the leading national lime producer.9
Even in housing, the weakest end market, a long-term buyer paid for scale. Berkshire Hathaway completed its purchase of homebuilder Taylor Morrison in July. The companies say the combined homebuilding operation is now the fourth-largest in the U.S.10
The fourth quarter opens with the Federal Reserve signaling one more rate increase this year.1 Data center and infrastructure work remains the clearest source of demand, and the industry's largest buyers continue to pay for scale.
† The Dinan Building Products & Services Index is a proprietary index of publicly traded middle-market Building Products & Services companies maintained by Dinan Capital Advisors. Index composition is available upon request.
1 U.S. Bank. "Fed Raises Rates to 3.75%-4.00%, First Hike Since 2023." September 16, 2026. https://www.usbank.com/investing/financial-perspectives/market-news/federal-reserve-interest-rate.html
2 Inman. "Existing-Home Sales September 2026: Pace Stays Under 4M, Rates Rise." October 13, 2026. https://www.inman.com/2026/10/13/existing-home-sales-september-2026/
3 HousingWire. "Home Depot, Lowe's: Remodeling Idles as Big Projects Lag." August 24, 2026. https://www.housingwire.com/articles/remodeling-home-improvement-demand/
4 Joint Center for Housing Studies of Harvard University. "Remodeling Spending Poised for Further Slowdown." July 23, 2026. https://www.jchs.harvard.edu/blog/remodeling-spending-poised-further-slowdown
5 Construction Business Owner. "ABC's Construction Backlog Indicator Rises Again in September on Data Center Strength." October 13, 2026. https://www.constructionbusinessowner.com/abcs-construction-backlog-indicator-rises-again-in-september-on-data-center-strength/
6 Trading Economics. "US Homebuilder Sentiment Hits One-Year Low." September 16, 2026. https://tradingeconomics.com/united-states/nahb-housing-market-index/news/584261
7 PwC. "Engineering and Construction: US Deals 2026 Midyear Outlook." June 17, 2026. https://www.pwc.com/us/en/industries/industrial-products/library/engineering-construction-deals-insights.html
8 QXO. "QXO to Acquire TopBuild for $17 Billion." April 19, 2026. https://investors.qxo.com/news/news-details/2026/QXO-to-Acquire-TopBuild-for-17-Billion/
9 Agg-Net. "Martin Marietta Materials to Combine with Lhoist North America." June 30, 2026. https://www.agg-net.com/news/martin-marietta-materials-to-combine-with-lhoist-north-america
10 Business Wire. "Berkshire Hathaway Completes Acquisition of Taylor Morrison." July 24, 2026. https://www.businesswire.com/news/home/20260724814103/en/Berkshire-Hathaway-Completes-Acquisition-of-Taylor-Morrison