Slowing Home Construction Won’t Hurt Home Depot and Lowes – Will It Last?

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dated: 2022-11-20 15:50:43 .

Headwinds pulling down the U.S. housing market are positive for home improvement retailers such as Home Depot ( HD ) and Lowe’s ( LOW ), but it’s unclear how long the momentum will last.

Atlanta-based Home Depot had a better-than-expected quarter amid rising interest rates and economic uncertainty. US same-store sales rose 4.5% year-over-year in the quarter. Similarly, North Carolina-based Lowe’s reported higher sales and raised its full-year earnings guidance, another sign that consumers are spending money on remodeling.

Executives at both companies struck an upbeat tone about their outlook for next year as home sales, home prices and construction activity slowed as mortgage rates are now above 7%.

“We’re seeing another interesting dynamic where, as mortgage rates rise, our customers become more inclined to stay put and start a project,” Home Depot CFO Richard McPhail said on the company’s conference call.

An employee works in the lumber department of a Home Depot store in Alhambra, California, on May 4, 2022. (Photo by Frederic J. BROWN/AFP) (Photo by FREDERIC J. BROWN/AFP via Getty Images)

Nationally, US pre-owned home sales fell for a ninth straight month in October, the National Association of Realtors said Friday, as rapidly rising mortgage rates scared off many potential buyers. Prices are more than twice as high as at the beginning of the year.

A sharp drop in demand discouraged sellers.

For example, the number of homes for sale at the end of October was 1.22 million, down 0.8%. both from September and from a year ago. The number of new properties is down compared to last year, indicating that sellers are reluctant to list their homes.

At the same time, although price growth has slowed considerably, prices are still high. According to data from Corelogic, throughout the country house prices have increased by 11.4% compared to last year.

This provided the homeowners with a convenient nest egg. Homeowners have an estimated $20 trillion in capital to invest in home improvement projects.

Federal Reserve data showed line of credit (HELOC) balances rose by $3 billion, the second quarterly increase after years of declining balances.

“This unique combination of factors is causing homeowners to work locally and invest in repairs and renovations to adapt their current homes to the growing needs of their families, rather than buying a new home,” said Marvin Ellison, chairman and president of von Lowe on the earnings call. companies.

However, some Wall Street analysts and other industry watchers say the home improvement business could feel the effects of a slowing housing market.

“Any potential decline in home prices could hurt consumers’ perceived return on their homes after several years of record spending[ing] in the category, according to Raymond James analyst Bobby Griffin in a note accompanying Home Depot’s earnings.

Housing woes continue to be a concern regarding demand for remodeling, particularly improvements that occur immediately before and after a home is sold. Sellers often spend on repairs and updates to attract buyers, while new homeowners spend on projects to make their homes their own.

According to Harvard University’s Joint Center for Housing Studies’ Remodeling Futures Program, annual home improvement and maintenance costs are expected to drop sharply by the middle of next year.

“The real estate and remodeling markets are undoubtedly slowing due to extremely high and unsustainable growth rates that followed the pandemic-induced recession,” said Carlos Martín, project manager of the center’s Remodeling Futures program. “Home improvement spending will continue to face challenges due to declining home sales, rising interest rates and rising costs of contractors and building materials.”

Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv

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Slowing Home Construction Won’t Hurt Home Depot and Lowes – Will It Last?

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