Concerns are growing about the future of two of America’s favorite home improvement stores.
Home Depot raised fears it could face setbacks after posting weak second-quarter earnings and issuing a worrying warning about the economy.
Chief Financial Officer Richard McPhail told analysts on an earnings call last week that consumers were spending less on big real estate projects because of a “sense of greater uncertainty in the economy.”
Homeowners are feeling the impact of higher mortgage rates and years of inflation that have hit their budgets, McPhail said.
Rival Lowe’s also cut its annual profit and sales forecasts this week. Chief Executive Marvin Ellison said high mortgage rates have discouraged Americans from moving house and undertaking do-it-yourself projects.
Home Depot has raised fears of a slowdown after posting weaker quarterly earnings
Home Depot is even struggling to sell its flooring and lighting products, which are typically its top sellers.
Those considering major home remodeling are holding off on applying for loans until interest rates come down, the company said in its earnings report.
The Federal Reserve is now widely expected to begin cutting interest rates next month, which will lower borrowing costs for consumers.
Home Depot said it expects its full-year 2024 sales to decline 3 to 4 percent compared with last year.
McPhail referred to this as a “postponement mentality,” something the company believes it has seen in its customers since mid-2023.
Home Depot rival Lowe’s also cut its annual profit and sales forecasts on Tuesday.
“We’re seeing significant implications… people are not moving as often as they typically do because current mortgage rates are so much higher,” Ellison told analysts.
Lowe’s saw a 5.1 percent drop in second-quarter sales compared to the same period last year.
The decline was largely due to weak demand for do-it-yourself projects, which account for more than half of Lowe’s sales.
The company said unusually warm spring weather had also hit sales as customers put off expensive gardening projects.
The company now expects a drop of between 3.5 and 4 percent in sales for the year.
Customers are postponing major home renovation projects until loan rates come down
Lowe’s has also revised down its sales forecast for the year.
Lowe’s CEO Marvin Ellison said high mortgage rates have discouraged Americans from moving home and taking on do-it-yourself projects.
High mortgage rates have kept buyers on the sidelines for the past few years. They have also kept Potential sellers put properties on the market.
Millions of Americans are locked into lower rates on their existing loans and don’t want to be forced into a more expensive mortgage if they move home.
While mortgage rates have begun to fall, experts warn that a bigger drop is needed to revive the frozen housing market.
The average 30-year mortgage rate hit 6.49 percent according to Freddie Mac’s latest figures from Aug. 15, the lowest level in more than a year.
The “Oracle of Wall Street,” Meredith Whitney, has said rates must fall below 6 percent.
Once rates are within the 5 percent range, buyers tend to feel encouraged that it is worth taking the plunge.
Whitney, who earned his nickname after predicting the global financial crisis, said home prices also need to fall by a tenth for there to be a material difference in affordability.
Mortgage rates at decades-high levels and record home prices mean the average home loan payment this year is double what it was in 2000, he said.
