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Fears grow for the future of America's favorite home repair stores
Concerns about the future of two of America's favorite home improvement stores are growing.
Home Depot sparked fears that it could face setbacks after it posted weakened earnings for the second quarter and issued a concerning warning about the economy.
CFO Richard McPhail told analysts on an earnings call last week that consumers were spending less on big home projects due to a 'sense of greater uncertainty in the economy.'
Homeowners are feeling the pinch of higher mortgage rates and years of inflation that have battered their budgets, McPhail said.
Rival Lowe's also cut its annual profit and sales forecasts this week. CEO Marvin Ellison said that elevated mortgage rates have deterred Americans from moving home and carrying out DIY projects.
Home Depot has sparked fears of a slowdown after posting weaker quarterly earnings
Home Depot is even struggling to sell its flooring and lighting products, which are usually best sellers.
Those considering a big home renovation are waiting to take out loans until interest rates drop, the company said its in its earnings report.
The Federal Reserve is now widely expected to start cutting interest rates next month, which will cut borrowing costs for consumers.
Home Depot said it expects its full-year 2024 sales to decline by 3-4 percent compared to last year.
McPhail referred to this as a 'deferral mindset,' which is something the company believes they have seen in their 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 aren't moving nearly 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 its second-quarter sales compared to the same period last year.
The drop was largely due to low demand for DIY projects, which account for more than half of Lowe's sales.
The company said that unusually warm weather in the spring had also dented sales as customers put off expensive garden projects.
The company now expects between a 3.5 to 4 percent drop in its sales for the year.
Customers are putting off large 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 that elevated mortgage rates have deterred Americans from moving home and carrying out DIY projects
Elevated mortgage rates have kept buyers on the sidelines over the last several years. They have also kept prospective sellers from putting properties on the market.
Millions of Americans are locked into lower rates on existing loans and do not want to be forced to take out a costlier mortgage if they move home.
While mortgage rates have begun to fall, experts warn that a bigger drop is needed to kickstart the frozen housing market.
The average 30-year mortgage rate hit 6.49 percent as of latest Freddie Mac figures from August 15 - the lowest level in over a year.
The 'Oracle of Wall Street' Meredith Whitney has said rates need to drop below 6 percent.
Once rates are within the 5 percent field buyers tend to feel encouraged that it is worth taking the plunge.
Whitney, who earned her nickname after predicting the global financial crisis, said house prices must also drop by a tenth in order to make any material difference in affordability.
Decades-high mortgage rates and record house prices mean the average payment on a home loan this year is double what it was in 2000, she said.