There are growing concerns about the future of two of America’s favorite home improvement stores.
Home Depot feared it could face setbacks after the company reported weaker second-quarter profit and issued a worrying warning about the economy.
CFO Richard McPhail told analysts on an earnings call last week that consumers are spending less on major home projects because of a “sense of greater uncertainty in the economy.”
According to McPhail, homeowners are feeling the effects of higher mortgage rates and years of inflation, which are taking a toll on their budgets.
Competitor Lowe’s also cut its annual profit and sales forecasts this week, with CEO Marvin Ellison saying high mortgage rates are discouraging Americans from moving and tackling DIY projects.
Home Depot has raised concerns about a slowdown after reporting weaker quarterly results
Home Depot is even struggling to sell its flooring and lighting products, which are normally bestsellers.
People considering major home renovations are waiting to take out a loan until interest rates drop, the company said in its earnings report.
The Federal Reserve is now widely expected to cut interest rates next month, lowering borrowing costs for consumers.
Home Depot expects sales for the full year 2024 to decline 3-4 percent compared to last year.
McPhail called this a “procrastination mentality,” which the company believes it has seen among its customers since mid-2023.
Home Depot competitor Lowe’s also lowered its annual profit and sales expectations on Tuesday.
“We’re seeing significant impacts: people are moving much less often than they normally would because current mortgage rates are much higher,” Ellison told analysts.
Lowe’s saw second-quarter sales fall 5.1 percent compared to the same period last year.
The decline was largely driven by low demand for DIY projects, which account for more than half of Lowe’s sales.
The company said unusually warm spring weather also depressed sales as customers postponed expensive gardening projects.
The company now expects a 3.5 to 4 percent drop in sales this year.
Customers are postponing major home renovation projects until lending rates drop
Lowe’s also lowered its sales forecast for the year
According to Marvin Ellison, CEO of Lowe’s, high mortgage rates have discouraged Americans from moving and doing DIY projects.
Higher mortgage rates have kept buyers on the sidelines in recent years. They have also deter potential sellers from putting their home on the market.
Millions of Americans are locked into lower interest rates on existing loans and don’t want to be forced into a more expensive mortgage when they move.
Although mortgage rates are starting to fall, experts warn that a bigger drop is needed to revive the frozen housing market.
The average 30-year mortgage rate was 6.49 percent, according to the latest figures from Freddie Mac on August 15. This is the lowest level in more than a year.
According to the ‘Oracle of Wall Street’ Meredith Whitney, interest rates must fall below 6 percent.
Once interest rates are within 5 percent, buyers often feel encouraged and feel it is worth taking the plunge.
Whitney, who earned her nickname after predicting the global financial crisis, said house prices would also need to fall by a tenth to make a meaningful difference to affordability.
According to her, mortgage rates have been high for decades and house prices are at record highs, making the average mortgage payment this year twice as high as it was in 2000.