Consumers are postponing large renovation projects as unfavorable macroeconomic conditions persist, impacting the U.S. housing market, Home Depot executives warned Tuesday.
CEO Ted Decker said in the company’s fourth-quarter earnings report that there has been “ongoing pressure on large remodeling projects.” He blamed the lackluster demand for home improvement projects on “uncertain macroeconomic conditions and a higher interest rate environment.”
Billy Bastek, the executive vice president of merchandising for Home Depot, told analysts during the Tuesday earnings call that the higher interest rate environment is still pressuring larger-scale remodeling projects, despite the “broader engagement across home improvement-related projects” and a boost in sales stemming from ongoing hurricane recovery efforts.
For those who are doing projects, many are turning to flexible financing options.
“We continued to see softer engagement and larger discretionary projects for customers typically use financing to fund the projects, such as kitchen and bath remodels,” Bastek said.
In the fourth quarter, sales for its pro customers, who are contractors, remodelers or maintenance crews who have a specific account, outpaced the do-it-yourself customers.
Meanwhile, high mortgage rates continue to weigh on consumers and the housing market. The average rate on a 30-year fixed mortgage last week hovered just under 7% for the fifth consecutive week.
Higher mortgage rates over the past few years have also created a “golden handcuff” effect in the housing market. Sellers who locked in a record-low mortgage rate of 3% or less when the pandemic began have been reluctant to sell, limiting supply further and leaving few options for eager would-be buyers.
Now, buyers are contending with home prices at near-record highs and elevated mortgage rates, which is dampening pending sales. Pending home sales fell unexpectedly in December, dropping 5.5% and pulling back from a 21-month-high.
Bastek also said that the company is not “assuming a change in the rate environment nor improvements in housing turnover.”
“As a result, we would expect continued pressure on larger remodeling projects. Given these factors, our fiscal 2025 outlook is for total sales growth to outpace sales,” he added.
In addition to high rates and home prices straining sellers and buyers, the National Association of Home Builders/Wells Fargo Housing Market Index for single-family housing also dropped to the “lowest level” in five months due to the threat of tariffs from bordering countries.
“Uncertainty on the tariff front helped push builders’ expectations for future sales volume down to the lowest level since December 2023,” NAHB Chairman Carl Harris said in a statement.
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