Bye-bye, DIYs: Lowe's and Home Depot say people are putting off home-renovation projects

By Aarthi Swaminathan

Between high interest rates, inflation and political uncertainty, home owners are taking a pause on big projects, CEOs say

Elevated mortgage rates and record-high home prices have pushed many would-be home buyers into wait-and-see mode. Now homeowners are playing the waiting game with renovation plans.

Homeowners, who have seen home values shoot up over the past year, have pulled back on home projects and renovations, in part due to uncertainty around inflation and interest rates, according to earnings reports from two home-improvement companies.

Higher interest rates have impacted the housing market and housing turnover, meaning how fast homes change hands, said Ted Decker, chairman, president and CEO of Home Depot (HD), on the company's second-quarter earnings call on Aug. 13. "That's also impacting customers' interest in financing larger projects," Decker said.

"Everyone is expecting rates are going to fall, so [they are] deferring those projects," he added.

As concerns about the broader economy have mounted, he said, "there's just a lot of noise with [the] political and geopolitical environment." With unemployment ticking up and inflation continuing to gnaw into disposable income, "people just took a pause," Decker said.

Much like home buyers, who have held back on purchasing properties as they wait for lower mortgage rates and prices, homeowners are also opting to exercise patience, Lowe's (LOW) CEO Marvin Ellison said on the company's second-quarter earnings call on Tuesday.

"We're all aware that we have an environment of elevated interest rates and inflation," the CEO said. "And because of that, the [do-it-yourself] customer is just on the sidelines, waiting for some form of an inflection to take place."

Meanwhile, some home buyers also appear to be in waiting mode, but for different reasons. A recent report from the real-estate brokerage Redfin (RDFN) suggested that buyers may be pausing purchase plans because of political uncertainty around the 2024 presidential election, and because "it's unclear where the country will be in six months," one real-estate broker told Redfin.

Homeowners are being driven by caution in spite of the fact that they - unlike home buyers, who are dealing with record-high home prices and elevated mortgage rates - have seen their home valuations take off like a rocket over the past few years.

Between June 2019 and June 2024, the median price of a home rose from $285,700 to $426,900, according to data from the National Association of Realtors.

Many homeowners have cashed in on the rapid growth in home values by taking out home-equity lines of credit, which are often a source of funding for home renovations. Between 2021 and 2023, balances on home-equity lines of credit, or HELOCs, rose 20%, according to a report by the Federal Reserve Bank of New York. A November 2023 survey by TD Bank found that 38% of homeowners who were planning to renovate in the following two years were using or planning to use a HELOC or home-equity loan to finance the process.

Even as some homeowners are putting renovation plans on pause, others who've been "locked in" by ultra-low mortgage rates have pursued renovation projects. These are homeowners who are staying put because they don't want to move to a new house with a much higher mortgage rate. With 86% of outstanding mortgage debt having an interest rate of less than 6%, which is below the current rate of 6.49%, many homeowners have little incentive to sell their home.

Home-improvement companies like Home Depot and Lowe's have benefited from homeowners hunkering down. "Simply put, people aren't moving nearly as often as they typically do because current mortgage rates are so much higher than their existing rates," Ellison said.

He said the core drivers of Lowe's business remain strong. "Home prices continue to appreciate, which is sustaining historically high levels of home equity ... and the aging housing stock means people will need to make repairs and improvements in their homes," Ellison said.

To be sure, falling rates have pushed some homeowners to refinance their mortgage, to extract equity from their home, and that's bringing parts of the housing market out of its slump.

Refinance activity was up 77% as of Aug. 16 from the same period last year, according to data from Fannie Mae.

-Aarthi Swaminathan

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

08-20-24 1618ET

Copyright (c) 2024 Dow Jones & Company, Inc.