Home Depot and Lowe's don't seem to be feeling the same pain as the U.S. housing market is falling. They are faring better than anticipated.
Market forces behind both homebuilding and home remodeling can be different and that is what is happening now.
Home Depot and Lowe's reported good earnings this week. Lowe's stock increased in value Wednesday. The executives of both companies were bullish about the future of their businesses. Home sales, prices and construction are all weak due to a big jump in mortgage rates.
Home Depot financial chief Richard McPhail pointed to an "improve in place" mentality among current homeowners who might have wanted to sell but changed their minds because they couldn't afford it.
All we can do is repeat what our customers are saying. We don't see a lot of dynamic in the market. Homeowners are sticking to their guns with rising mortgage rates.
With rising mortgage rates, homeowners are staying in place.
Home prices are still higher in October than they were in October 2021, but the annual comparison has been decreasing for several months. The prices are falling more quickly than usual.
The run-up in home prices during the first years of the epidemic gave homeowners a lot of equity. Two years in a row, prices went up more than 40%.
According to Black Knight, by the end of the first quarter of this year, homeowners had $11 trillion dollars in tappable equity. That is the amount of money a person can take out of their house. In the first quarter of this year, equity grew by over a trillion dollars. The homeowner's tappable equity is about $200,000.
The CEO of Lowe's said that equity is part of a three-pronged driver of home improvement. Home price appreciation, the age of the U.S. housing stock, and high levels of personal disposable income are some of the factors he pointed to.
Ellison said in an interview with CNBC that the factors bode well for home improvement.
Homebuilders, who work in both home construction and home renovation, don't think the market is as good as it could be. According to the National Association of Home Builders, builder sentiment dropped in November for the eleventh month in a row.
According to the NAHB, the remodeling sector will be the best during the housing contraction.
Robert Dietz, NAHB's chief economist, said that the growth rate for improvement spending will slow. Aging housing stock, home trends and a decline in household mobility all favor remodeling spending.
Dietz says that the interest rate lock-in effect means that people don't want to sell a home where they might be paying a 2.75% mortgage interest rate and trade up to another home where the rate would likely be around 7% today.
The Joint Center for Housing predicts that the annual gains in home improvement and maintenance spending will decline by the middle of next year, but only at a 6.5% growth rate.
Carlos Martn is the project director of the Remodeling Futures Program at the Center. Spending for home improvements will continue to face challenges from declining home sales, rising interest rates and increasing costs of contractor labor.
Consumers seem to want to spend more on their homes even though inflation is high. There was a drop in the number of sales but a rise in the dollar amount. Their revenue increased due to that.
Home Depot's McPhail said that there is inflation in the market but not to the degree that they anticipated.
According to a recent survey by the home improvement and design website, only 1% of homeowners canceled a home improvement project in the year 2022. Almost one-quarter of people said they were planning to start a home improvement project in the next year.
Marine Sargsyan said that more than half of the homeowners surveyed have no intention of selling or moving out of their current residences in the next 20 years or ever.
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