Home Depot & Lowe’s customers are still waiting for lower interest rates to pursue big projects
Home Depot and Lowe’s both cut their sales forecasts for the year after seeing less spending than expected on home-improvement projects amid higher interest rates and macroeconomic uncertainty.
Home Depot executives expect comparable sales to decline 3% to 4% for the full fiscal year, they said in the company’s second-quarter earnings report Aug. 13. They previously expected a 1% decline. Executives at Lowe’s, which reported earnings the following week, similarly expect a 3.5% to 4% decline in comp sales, previously forecasting them to be down 2% or 3%.
“At the beginning of the year, our full-year outlook reflected our expectation that macro and consumer trends in 2024 would be similar to the back half in 2023,” Lowe’s CEO Marvin Ellison told investors on Aug. 20. “That assessment has turned out to be accurate, and yet there still remains a great deal of uncertainty, particularly around interest rates and inflation.”
That could change in the months ahead. On Friday, Federal Reserve chair Jerome Powell signaled interest rate cuts are on the horizon, but it’s unclear when they could come or their extent.
Consumer uncertainty held back near-term growth in the remodeling space the most in the second quarter, according to a survey of about 500 professional remodelers by Qualified Remodeler and housing research firm John Burns Research and Consulting. Skilled labor availability, higher financing costs and inflation were the next most cited reasons for the slowdown.
“Consumers are more cautious, and they’re holding back on large discretionary purchases,” said Matt Saunders, svp of building products research for John Burns Research and Consulting. “They’re just more concerned about their overall finances and the overall state of the economy, particularly the labor market.”
The housing research firm estimates that about $30 billion in remodeling spending is sitting on the sidelines waiting to be spent, especially in big-ticket categories such as kitchen and bath that are more likely to be financed and easier to put off than, say, fixing a leaky roof or an HVAC system.
“We’re characterizing the remodeling market now as in a state of deferral,” Saunders said. That contrasts with the beginning of the Covid pandemic when there was a huge boost of remodeling activity in a short period of time. “Historically, remodeling has been less cyclical and more stable, but the Covid pandemic really upended this. There was a huge boom up front, and this has given back to pretty weak activity.”
During Home Depot’s earnings call, CEO Ted Decker said his company’s consumers remain quite healthy after seeing dramatic increases in home equity since 2020, as home values have skyrocketed. But they are less keen on financing larger projects due to elevated interest rates. “Everyone’s expecting rates are going to fall,” Decker said.
Last quarter, the company saw more pressure in categories related to such construction projects. Building materials sales, which include the electrical, lumber, millwork and plumbing departments, fell from about $14.3 million in the second quarter of 2023 to $13.9 million in the same period of 2024.
Additionally, “there’s just a lot of noise with the political and geopolitical environment,” Decker said. “Unemployment ticked up, inflation keeps eating away at disposable income, and I think people just took a pause as we progressed through the quarter, or more of a pause because of these macro uncertainties.”
Brian Yarbrough, an analyst for Edward Jones covering consumer companies, now expects demand for home projects to improve in 2025 or whenever the Federal Reserve lowers interest rates. He previously expected it to improve by the second half of 2024. But he especially anticipates that to happen at some point, given the age of the nation’s housing stock — a point also raised by Ellison. About half of all housing units in the U.S. were built before 1980, according to Census data.
“At some point, those houses are going to need repair, maintenance, they’re going to need updating, remodeling,” Yarbrough said. “It’s just a matter of time, but when that turn occurs is the million-dollar question.”