With many households experiencing high financial anxiety, it’s no wonder that many are avoiding redoing their countertops. Home improvement giant Home Depot knows as much — predicting clouds ahead in its earnings report released on Tuesday.
When looking at stores open year-round, comparable sales dipped by 3.3% last quarter, while comparable sales in the U.S. dropped 3.6%. And Home Depot is buckling up to finish off a trying 2024. The company projects that sales in its stores will experience a dip in sales between 3% and 4% compared to last year. That’s a far cry from the previous estimate of a 1% drop.
“During the quarter, higher interest rates and greater macro-economic uncertainty pressured consumer demand more broadly, resulting in weaker spend across home improvement projects,” Ted Decker, chair, president and CEO of Home Depot said in a news release. He claims, however, that “the underlying long-term fundamentals supporting home improvement demand are strong.”
Indeed, it seems as if Home Depot has stumbled onto a new pulse check for Americans. Execs are noting uncertainty stoked not necessarily by a recession, but by anxiety surrounding high inflation and interest rates.In short, people are feeling a bit shaky and are pushing back any building that new deck or doing a bathroom remodel as a result.
“We’re navigating an economic environment that is leading to greater consumer uncertainty and a deferral mindset,” Home Depot CFO Richard McPhail told Fortune. His fellow exec has similar messaging, as Decker explained in a post-earnings call that “everyone’s expecting rates are going to fall.” Meaning that the customer is set to “defer those projects,” per Reuters.
Part of what is happening is also likely linked to the lock-in effect. Those who took advantage of low mortgage rates during the pandemic are finding themselves stuck in place, keeping tight on their pot of gold to avoid re-entering a now harsher homebuying landscape.
And those sprucing-up projects don’t really happen until it’s time to put the “For Sale” sign up, point out the Financial Times. The subsequent lack of turnover has “taken out what’s likely over $10 (billion) in demand in our market,” McPhail told the outlet.
Of course, home prices reaching record highs also likely forces people out of redecorating or improvement projects as many are already spreading their wallets thin enough to simply purchase a home.
“Higher interest rates have pressured home sales and impacted home improvement projects typically financed by borrowing,” McPhail explained to Fortune. “In addition, persistent inflation across household expenses and services is crowding out durable goods spending.”
Home Depot is confident you’ll be back though, and like any ex-boyfriend, they’ll be waiting the same as they once were.
“Despite these challenges, we believe the long-term fundamentals underlying home improvement are strong, and we will continue to invest in our business and focus on growing share in any environment,” says McPhail.
