Homeowners are still waiting for breaks in renovation projects.
The high interest rates of recent years have forced millions of Americans to limit or postpone their plans to remodel or renovate their homes.
“The higher interest rates have started to impact the housing market, particularly housing sales, which are down about 40%. And I think in the last quarter, last month, we’ve seen numbers that are approaching a 40-year low on an annualized basis… which is impacting customer interest in financing larger projects,” Home Depot (HD) CEO Edward Decker said Tuesday on the company’s second-quarter earnings call. “Everyone is expecting rates to come down. So we’re postponing those projects.”
The retailer said its comparable sales in the U.S. fell 3.6% in the second quarter, while Wall Street had expected a decline of 2.63%. It now expects comparable sales to fall 3% to 4% for the full year, compared to a previous forecast of a 1% decline.
Existing home sales continue to decline this year as interest rates remain high and housing supply remains limited. This has led to a decline in spending on home improvements, which often come with new home purchases.
Investor confidence is growing that the Federal Reserve will cut interest rates starting next month, which has already led to a decline in mortgage rates.
Read more: Mortgage rates fall below 6.5% – is this a good time to buy a home?
Executives at Home Depot pointed out that there is a direct connection between lower mortgage rates and fluctuations in the housing market.
Mortgage rates “are trending downward. I think they’re approaching 6.5% for a qualified mortgage. And based on what we saw toward the end of last year, we think you’re approaching a level where people are going to get involved,” Decker said.
He noted that broader economic concerns could be a headwind, but added: “If rates fall toward 6%, we expect activity.”
The National Association of Homebuilders reported in mid-July that its Remodeling Market Index (RMI) fell 1 point to 65 in the second quarter from the previous quarter. A reading above 50 means more remodelers rate conditions as good rather than bad.
“Some homeowners may be tempted to delay projects because they are waiting for interest rates to fall. However, this is offset by the fact that others who want to work with a rehabilitation company now may be hesitant because they fear that inflation could increase project costs if they wait,” Robert Dietz, chief economist at NAHB, wrote in a statement.
At the same time, the housing stock is increasing for both new and existing homes, which is a positive development for buyers.
However, Adam Baumgarten, managing director of Zelman & Associates, told Yahoo Finance: “The question is, given all the talk about a recession and things like that, will people have enough confidence to buy a home in this market?”
Dani Romero is a reporter at Yahoo Finance. Follow her on X @daniromerotv.
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