Home improvement retailers such as Home Depot and Lowe's warned this week that consumers remain reluctant to splurge on big-ticket home improvement items, as elevated mortgage rates, high home prices, energy inflation, weakening sentiment, and broader macroeconomic uncertainty weigh on demand.
Let's begin with Home Depot, which on Wednesday reported mixed first-quarter results. At the same time, management said on the conference call that it is not expecting a "marked improvement in underlying demand."
Bernstein analyst Zhihan Ma pointed out that Home Depot's foot traffic has been negative for five straight quarters, underscoring the persistent downturn in the home improvement space.
Ma maintained a "cautious outlook" and expects a "gradual path to a home improvement market rebound," as high mortgage rates and inflation in material costs do not help the "affordability hurdle for homeowners to engage with big-ticket discretionary projects."
Fast forward to Wednesday morning, and Lowe's reiterated its full-year forecasts but warned that households are dialing back big-ticket do-it-yourself projects.
What caught our attention was Lowe's CEO Marvin Ellison, who warned analysts on an earnings call earlier that:
I think overall this has been the most difficult housing market that I've faced in this business since the financial crisis. And as Brandon mentioned, it's almost exclusively or disproportionately on the DIY customer.
That's the majority of where our revenue comes from. And so I look at it from this perspective, you know, we've delivered four quarters of positive comps in an environment where the DIY has faced more economic pressure than I've ever seen before.
DIY softness comes as U.S. housing turnover sits at historic lows because of affordability woes, some of the worst in a generation, and elevated mortgage rates.
Housing affordability for first-time homebuyers remains at a four-decade low.
This, of course, means fewer home sales, which typically translate into fewer move-in renovations, remodels, flooring upgrades, kitchen projects, and other big-ticket home improvement purchases.
At the start of the week, Wayfair CFO Kate Gulliver issued a similar warning at JPMorgan's conference, signaling that demand for big-ticket home items is unlikely to recover this year.