Is home improvement set for a quick rebuild?
Home Depot recently forecast flat same-store growth for 2023 and Lowe’s predicted comps to be flat to down two percent. Officials, however, remain bullish on the long-term trends in the home improvement channel.
Marvin Ellison, Lowe’s chairman and CEO, speaking last week on the chain’s fourth-quarter call, cited three drivers behind his favorable medium and longer-term outlook:
- Disposable personal income: Consumer savings remain roughly $1.5 trillion higher than the pre-pandemic level, with 85 percent concentrated in the top 40 percent of income owners who are more likely to be homeowners.
- Home price appreciation: Home equities remain at record levels, at nearly $330,000 on average. Even with a modest price decline, the level of equity built up during the pandemic would remain significant.
- Age of housing stock: Half of U.S. homes are over 41 years old, the largest figure since World War II.
Said Mr. Ellison, “These factors, along with strong millennial household formation, baby boomers’ increasing preference to age in place, and more widespread remote work will continue to be tailwinds for our business. And given the slowdown in housing turnover is driven by higher rates and low supply rather than demand, we continue to see a nationwide trend of trading up in place with consumers opting to upgrade their existing home to meet their evolving needs.”
Lowe’s expects a slight decline in the home improvement market in 2023 as residential investment faces pressures from elevated inflation levels, higher interest rates and a more cautious consumer.
On Home Depot’s quarterly call last week, CEO Ted Decker said he expects “a moderating year in 2023” with “price-sensitivity” intensifying in the second half of 2022 and spending shifting towards services.
On the upside, favorable dynamics supporting home improvement spending in the years ahead include the “fundamental shortage of housing” amid household formation and population growth, aging housing stock, a “healthy customer’ with growing wages, and low mortgage rates.
Mr. Decker said, “People are going to want to make more significant improvements on those homes. So, we remain and just couldn’t be more bullish on the longer-term view of this industry.”