Home Depot Signals US Housing Demand Slowing

November 13, 2018 Updated: November 13, 2018

Home Depot Inc., the biggest U.S. home improvement chain, suggested on Nov. 13 that the pace of U.S. home sales was slowing, and said impending trade tariffs could raise prices for its products.

The warning from the country’s top seller of power tools, flooring, and lawnmowers overshadowed stronger-than-expected third-quarter results and a higher annual sales forecast. Its shares fell 1.5 percent in otherwise upbeat Wall Street trading.

After years of a steady recovery from the U.S. housing market meltdown in 2008, there are signs that housing demand is slowing as mortgage rates climb higher, hurting purchasing power. Many large homebuilders including PulteGroup and D.R. Horton have already warned of slowing demand from home buyers.

“(The housing market) has recovered a lot, but not all the way,” Home Depot Chief Financial Officer Carol Tomé said in an interview. “The steepness of the recovery is going to slow as we reach full recovery,” she said.

On a conference call with analysts, Tomé said home starts and home price increases were “moderating” but other drivers of home improvement spending supported Home Depot’s higher sales and earnings outlook for fiscal year 2018.

The Atlanta-based retailer now expects sales to rise 7.2 percent in the year ending January, compared with an earlier forecast of 7 percent growth. It raised its earnings forecast to $9.75 per share from $9.42 previously.

Costs from tariffs on Chinese imports—expected to rise to 25 percent from next year—will also lead to pricing pressures, the company said.

“With our scale we can manage through tariffs. In some instances, retail prices will go up,” Tomé told Reuters.

In August, Home Depot Chief Executive Officer Craig Menear said homeowners were spending more as they viewed their homes as an investment rather than an expense. But home price gains slowed in August, a new sign that higher mortgage rates were weighing on housing demand.

Sales at U.S. Home Depot stores open for more than a year surged 5.4 percent during the third quarter ended Oct. 28, above analysts’ expectations of a 4.38 percent increase, according to IBES data from Refinitiv.

Home Depot’s third-quarter net earnings rose to $2.87 billion, or $2.51 per share, from $2.17 billion, or $1.84 per share, a year earlier. That beat analysts’ average estimate of $2.26 per share.

Net sales overall climbed 5.1 percent to $26.30 billion and also exceeded analysts’ forecasts.

By Aishwarya Venugopal