Home Depot’s strong quarter shows the housing market is still booming

The home improvement retail giant reported better-than-expected sales and profit gains for the first quarter on Tuesday and raised its outlook for the remainder of this fiscal year. Shares of Home deposit (HD)one of 30 Dow Jones stocks, initially rose more than 3% before the market opened for news, but fell slightly in the late morning.
Shares were broadly higher on Tuesday despite the retailer’s low earnings walmart (WMT)another component of Dow, which fell about 9%. Home Depot Rival Lowe’s (LOW)which will publish its first quarter results on Wednesday, fell about 2%.
The Home Depot had a rough start to the year as investors worried about a potential housing pullback as interest rates and inflation rise. Stocks are still down almost 30% in 2022 despite Tuesday’s good news.
But new CEO Ted Decker, who took over from longtime Home Depot chief Craig Menear earlier this year, was optimistic. He noted in the earnings release that sales, which rose nearly 4% from a year ago to $38.9 billion, were the highest on record for the first quarter of the year. history of the company.

“The strong performance in the quarter is even more impressive as we were comparing against last year’s historic growth and faced a slower start to spring this year,” Decker said.

In a conference call with analysts, Decker added that “clients continue to tell us that their homes have never been more important and the backlog of projects is very healthy.” He said “the medium to long-term fundamentals of home improvement demand have never been stronger.”

The strong Home Depot numbers could help dispel some concerns about an economic slowdown and a potential drop in house prices.

Yes, the Federal Reserve’s rate hike plans could lead to even higher mortgage rates. But experts point out that the tight supply of new homes coupled with a still healthy job market should continue to fuel home sales. It’s good for Home Depot.

Rising mortgage rates will “undoubtedly pour cold water on the housing market,” Joe LaVorgna, chief economist for America as Natixis CIB, said in a report.

But he added that “it is exceptionally difficult to determine the extent of the slowdown in house prices due to a chronic national housing deficit – immeasurably compounded by the pandemic housing boom and ongoing supply chain problems. which prevented the completion of new houses”.

LaVorgna thinks that “just a mid-single-digit correction in house prices over the next year is entirely reasonable.”

In other words, house prices are unlikely to completely collapse like they did in the late 2000s. This is not a repeat of the subprime mortgage boom and the subsequent collapse.

“The main problem for housing remains the shortage of supply. There is not enough to meet the demand,” said Laura Adams, senior real estate analyst for Aceable, an online real estate education platform. “We don’t expect it to be another bubble bursting. There could just be a gradual cooling this year and next year.”

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