- CNBC’s Jim Cramer examined Home Depot’s earnings report on Wednesday and said the retailer’s findings led him to believe that interest rate cuts by the Federal Reserve could prevent a hard landing in the housing market.
- “Right now, the housing market is waiting for the cavalry to come to the rescue, which is a rate cut from the Fed,” he said. “While we don’t necessarily need that, at least right now, it could be a major positive catalyst for a large part of the economy.”
CNBC’s Jim Cramer examined Home Depot’s earnings report on Wednesday and said the retailer’s findings led him to believe that interest rate cuts by the Federal Reserve could prevent a hard landing in the housing market.
“Right now, the housing market is waiting for the cavalry to come to its rescue, and by that I mean it’s waiting for the Fed to cut rates,” he said. “While we don’t necessarily need that, at least right now, it could be a major positive catalyst for a large part of the economy. Sure, lower rates will work, but unfortunately not until the Fed comes out of the window and gives it to us.”
The home improvement giant beat earnings expectations on Tuesday but indicated it expects weaker sales later in the year as higher interest rates and the difficult consumer situation persist. On the conference call, Home Depot CFO Richard McPhail said, “There is certainly a direct correlation between falling mortgage rates and the activity that at least brings an increase in sales.” McPhail reiterated that sentiment in an interview with CNBC, saying that high interest rates have caused homeowners to delay moving into new homes or financing projects, especially as the Fed threatens to cut rates.
At its meeting last month, the Fed left interest rates unchanged and Chairman Jerome Powell said a September rate cut was “on the table” as long as inflation data continued to point to a slowing economy. The producer price index, a measure of wholesale inflation, rose less than expected on Tuesday, fueling investor hopes that a rate cut is indeed imminent.
According to Cramer, if mortgage rates on the 30-year fixed-rate mortgage drop to nearly 6.5%, there would be more remodeling and rehabilitation work supported by home equity loans. These areas suffered from supply chain issues during Covid and failed to gain traction after the pandemic due to sharp rate hikes, he said. Cramer also said the “golden handcuffs” dynamic – where homeowners don’t move because they don’t want to lose out on low rates – won’t last forever. In his view, those homeowners are likely to move when rates drop.
“Home Depot has given me hope that we can avoid a hard landing in real estate, but only if the Fed loosens the golden shackles it created several years ago by cutting interest rates to extremely low levels,” Cramer said. “I’m betting that will happen, and Home Depot clearly sees it that way, otherwise they wouldn’t have spent $18 billion on a professional roofing and pool contractor, two areas that desperately need lower interest rates.”
Home Depot did not immediately respond to a request for comment.
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