Home Depot’s strong quarter shows housing market is still booming

The home improvement retail giant reported better-than-expected gains in sales and profits for the first quarter on Tuesday and raised its forecast for the rest of this fiscal year. shares Home Depot (HD)one of the thirty stocks in dawinitially rose more than 3% before the market opened on the news but fell slightly in late morning trading.

Stocks were broadly higher on Tuesday despite poor profits from the retailer Walmart (WMT)another component of the Dow, That fell by about 9%. Home Depot competitor Louie (Little)which will report its first-quarter earnings Wednesday, is down about 2%.

Home Depot hostel Tough start to this year Because investors are worried about a possible downturn in housing with rising interest rates and inflation. Stocks are still down about 30% in 2022 despite the good news on Tuesday.

But the new CEO Ted Decker who He took the position from longtime Home Depot president Craig Meiner Earlier this year, he was optimistic. In the earnings statement, he noted that sales, up nearly 4% from a year ago to $38.9 billion, were the highest ever for the first quarter in the company’s history.

“The strong performance in the quarter was even more impressive as we were comparing historical growth last year and had a slower start to the spring this year,” Decker said.

During a conference call with analysts, Decker added that “clients keep telling us that their homes have never been more important, and the backlog of projects is very healthy.” “The medium to long-term underpinnings of the demand for home improvement have never been stronger,” he said.

Home Depot’s strong numbers may help dispel some concerns about an economic slowdown and a possible drop in home prices.

Yes, plans to raise the Fed’s interest rates could lead to higher mortgage rates. But experts point out that a short supply of new homes along with a still healthy job market should continue to support home sales. This is good for Home Depot.

High mortgage rates “will undoubtedly pour some cold water on the housing market,” Joe LaVorgna, chief US economist for Natixis CIB, said in a report.

But he added that “ascertaining how severely slow home prices are is made extraordinarily difficult by the chronic national housing deficit – exacerbated indefinitely by the spreading housing pandemic, and ongoing supply chain issues that have prevented the completion of construction of new homes.”

LaVorgna believes that “just a single-digit correction in home prices over the next year is perfectly reasonable.”

In other words, home prices are not likely to collapse quite as much as they did in the late 2000s. This is not a repeat of the mortgage boom and subsequent crash.

“The main issue for housing remains a lack of supply. There isn’t enough to meet demand,” said Laura Adams, chief real estate analyst at Aceable, an online real estate education platform. “We don’t expect this to be another bubble bursting. There may be a gradual easing this year and next.”