With so many households facing major financial worries, it’s no wonder many are avoiding replacing their countertops. Home improvement giant Home Depot knows this well – it predicted a bleak outlook in its earnings report released on Tuesday.
Looking at stores open year-round, comparable sales fell 3.3% last quarter, while comparable sales in the U.S. fell 3.6%. And Home Depot is gearing up to end a busy 2024. The company forecasts that sales at its stores will decline 3% to 4% year-over-year. That’s a far cry from the previous estimate of a 1% decline.
“During the quarter, higher interest rates and greater macroeconomic uncertainty put downward pressure on consumer demand in general, resulting in lower spending on home improvement projects,” said Ted Decker, chairman, president and CEO of Home Depot, in a press release. However, he maintains that “the underlying long-term fundamentals supporting demand for home improvement projects are strong.”
In fact, it seems that Home Depot has hit upon a new pulse meter for Americans. Executives are noticing uncertainty, not necessarily caused by a recession, but by fear of high inflation and high interest rates. In short, people are feeling a little uncertain and are putting off building a new deck or renovating a bathroom.
“We are operating in an economic environment that is leading to greater consumer uncertainty and a procrastination mentality,” said Richard McPhail, CFO of Home Depot, AssetsHis colleague from the executive board is expressing a similar message. In a conference call after the results were released, Decker explained that “everyone is expecting prices to fall.” This means that the customer will “postpone these projects,” according to Reuters.
Part of the current development is probably also related to the lock-in effect. Those who took advantage of low mortgage rates during the pandemic must now hold on to their gold to avoid being put in a more difficult home-buying situation again.
And these sprucing-up projects don’t really come to fruition until it’s time to put up the “for sale” sign, as the Financial Times points out. The resulting drop in sales has “wiped out probably over $10 billion of demand in our market,” McPhail told the newspaper.
Of course, record-high home prices will also likely discourage people from renovating or upgrading their homes, as many already have so little money that they could easily afford a home of their own.
“Higher interest rates have put pressure on home sales and impacted home improvement projects that are typically financed through loans,” McPhail told Assets. “In addition, continued inflation in household spending and services is leading to spending on durable goods.”
However, Home Depot is confident that you will come back, and like any ex-boyfriend, they will be waiting for you just like they used to.
“Despite these challenges, we believe the fundamentals of the home improvement industry are solid over the long term. We will continue to invest in our business and focus on growing our market share in every environment,” says McPhail.
