Lowe’s and Home Depot Slammed by the Housing Market

Much of this has to do with the housing market, or at least that’s what these companies are saying. Between a sharp rise in house prices and high mortgage rates, people simply do not have the funds to afford any home renovations for the time being. 

As people were locked in their homes, they began to notice issues they had with their homes and would go to places like Home Depot and Lowe’s (or get a contractor to) so they could buy the materials they needed. Because of this, these companies were thriving.

With the number of layoffs from various companies and industries, and many others going under, this number will only continue to rise for the foreseeable future.

One issue the company is having is the price of its products. Like other industries, the prices in the home renovation industry have gone up. The store has reported that products over $1000 had dropped in sales by 5.5% compared to the previous year.

Home Depot’s digital sales have gone down by 5%. While Lowe’s online sales have been doing slightly better, they are still experiencing a 4% drop in these sales for the time being. 

“While we’ve seen a more cautious consumer for some time now, this quarter, we saw some of these consumers increasingly prioritizing experiences over goods, spending on travel and entertainment. Whenever the DIY customer becomes cautious, it disproportionately affects us,” Ellison said.

The company anticipated a drop in earnings per share between 7% and 13% and a same-store sales decline of between 2 % and 5%. However, the company ended up expecting a decline of earnings per share of 9% to 11% and a same-store sales decline of between 3% and 4%.

However, the home improvement brand has wanted to make it clear that this is only a short-term problem, and they hope that, with time, consumers will come back and start spending money again. 

High interest rates and a shortage of affordable housing have led to a pause in home-buying. This means there is a lower demand for projects to spruce up your house. With the high cost of living, consumers are holding back on spending.

Along with high mortgage interest rates, poor home affordability levels have not been so high since the 1980s. Mortgage rates reached above 7% while mortgage applications fell by 10.6%, according to the Mortgage Bankers Association.

Due to this, people either don’t have any money or want to keep a hold of their savings that they would have spent on a home renovation in case they lose their job so that they have some money to fall back on. 

Home furnishing chains are also facing the brunt of the conservative spending because of the cost of living. In the third quart of last yar, comparable brand revenue decreased by 14.6% at Williams-Sonoma and net sales sunk by 22.9% at Hooker Furnishings.

This is the first time that Home Depot has projected a decline in annual sales since 2009, when the U.S. economy was destroyed by the global financial crash caused by a huge housing bubble.

Last year, the average receipt at Home Depot declined by 0.3% compared to 2022, and customer transactions were down by 2.4%. It is also getting more and more expensive to purchase big-ticket items via credit cards or with loans as the U.S. Federal Reserve’s attempt to combat inflation.

In the third quarter of last year, revenue slipped by 3% to $37.71 billion, according to to Home Depot Inc. This is better than the fall to $37.52 billion that was predicted by Wall Street, according to a survey of analysts by Zacks Investment Research.

Home Depot appealed this settlement to the Supreme Court in June 2024; however, the court refused to hear it. The home improvement corporation claimed that the settlement would make it difficult for the health insurance company to sue for other antitrust violations in the future, but they denied any wrongdoing. 

Home Depot claimed that Blue Cross Blue Shield had taken part in anti-competitive actions which incurred excessive costs. A Blue Cross Blue Shield statement said that Home Depot alleged that entered “into an agreement” with other companies “not to compete with each other and to limit competition” in selling health insurance.

In comparison, its overall earnings for 2023 were $86.4 billion, and its EPS was at an all-time high of $13.20. 

However, hardly anyone is buying a house right now because the prices are too high, and no one is hiring any contractors for building work or home renovations because they simply cannot afford the price of materials or to pay the contractors for their work. 

The issue? If contractors don’t have the work, then they have no need to go out and buy materials because they don’t need them. If they aren’t buying the materials, then they’re not going to places like Home Depot and Lowe’s, which causes these companies to lose out on much needed sales.

Unfortunately for Home Depot, the bulk of home-improvement projects take place shortly after a move. The people who are not moving house are not spending money on major remodels either.

But due to the earnings reports that have come out from these companies and others in the home improvement sector throughout the last year, people have every right to be concerned as to what the future might hold. 

“In our view, the situation will only remedy itself once the economy picks up or the backlog of work builds to an extent that it fuels latent demand – which will not happen any time soon,” Saunders said.

“I’d say we have a neutral look on housing for 2024. We don’t think there’s incremental pressure, nor do we think that we’re quite ready for a hockey stick recovery,” Decker said.