Home Depot’s strong quarter is no accident — Americans can’t buy new homes, so they’re fixing up the ones they’ve got
Home improvement retailer Home DepotHD, -0.64% Inc. on Tuesday reported earnings and revenue that beat expectations, and upped its outlook. It was the continuation of a trend that’s persisted for a few years: in the face of lean housing inventory and little new supply on the horizon, Americans are increasingly choosing to take matters into their own hands.
Earlier this year, the “leading indicator of remodeling activity” at the Joint Center on Housing Studies at Harvard University pointed to $340 billion worth of homeowner spending on improvements and repairs for 2018. That amount, 7.5% higher than 2017’s total, was boosted in part by last year’s natural disasters.
Read: Get ready: home remodeling is set to surge at the fastest pace in more than a decade
But there are a number of macro factors contributing to higher remodeling spending for years to come, not just in the aftermath of a few hurricanes.
Home equity levels keep roaring higher. The scarcity of homes to buy means more existing owners are staying put and updating their homes, rather than moving up – or down. Baby Boomers are, in many cases, aging in place.
Here’s how Home Depot CFO Carol Tomé put it on a call with analysts: “Housing turnover now stands at about 4% of units. And that is in part because we have a housing shortage in our country. We only have 4.1 months of supply against a normal month of supply more like six months of supply. And with the housing shortage home prices have appreciated. With home price appreciation, homeowners have more equity in their homes. In fact home equity values have increased 100 — over 120% since 2011 about $73,000 per homeowner in terms of equity. So as homeowners view their home as an investment and not an expense they spend more.”
Also see: The housing we want for America is still out of reach
Home Depot stock HD, -0.64% hasn’t made much progress this year – its share price is up 2.4% since January, a hair higher than the Dow Jones Industrial AverageDJIA, +0.47% . But over the past 12 months, it’s surged more than 26%.
And executives are bullish. Even as affordability gets stretched, the store is well-positioned, Tomé said, citing 7.7% sales growth in Seattle, a market that’s seen double-digit price growth consistently for years.
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