Demand for home improvement projects is expected to be subdued this year, but there is good reason to believe the dip will be temporary, according to home improvement retailer Lowe's (LOW).
“When you hear these factors along with trends like chronic housing undersupply, the creation of a Millennial household, baby boomers aging in place and continued numbers of people working from home, you can understand why we are confident “We believe that demand for home improvement will increase over time among both homeowners and professionals,” Lowe's CEO Marvin Ellison said on the company's fourth-quarter earnings call on Tuesday.
Comparable sales reported by Lowe's fell 6.2% in the quarter ended Feb. 2, due to continued pressure from do-it-yourself customers holding back spending on larger ticket items. Lowe's forecast full-year 2024 comparable sales to decline 2% to 3%.
Sales of occupied homes remain at historic lows, mortgage rates continue to hover around 7% and home prices have not declined, discouraging many from moving or selling.
Ellison said that because of these factors, the company expects DIY demand to be under pressure in the near term. The other part of this equation is the timing of the Federal Reserve's rate cuts, which could boost the housing market and, in turn, big purchases at Lowe's.
“While confidence in a soft landing has increased, there is still much speculation about the timing of expected rate cuts given easing inflation,” Ellison said. “It is also unclear how quickly consumers will respond to these changes and how quickly their spending behavior will change.”
Some Wall Street analysts doubt that demand for renovations will pick up again this year amid higher mortgage rates and a slowdown in new construction projects.
“Not 2024, maybe the second half of 2024,” DA Davidson managing director Michael Baker told Yahoo Finance Live (video above). “But we don’t want to get too ahead of ourselves yet. We expect that same-store sales will certainly continue to decline in the first half of the year and will likely decline even further in the second half of the year.”