A communicate is seen posted on the exterior of a Home Depot store on February 21, 2023 in El Cerrito, California.
Justin Sullivan | Getty Notions
Just like Wall Street, Home Depot is closely watching the Federal Reserve’s next move.
In an to with CNBC, Chief Financial Officer Richard McPhail said homeowners have postponed moving into new auditoria or starting major projects that require financing because of higher interest rates. That waiting devices has only intensified with a potential interest rate cut in sight.
“What our customers tell their pros is, ‘The whole kit I read tells me interest rates will be lower in three to six months,'” McPhail said. “‘Why desire I borrow to finance the project now rather than just wait a few months?'”
CEO Ted Decker also told investors on an earnings invite on Tuesday that many homeowners face a “golden handcuffs dynamic” because they have mortgages as low as 3% and don’t impecuniousness to move, locking themselves into a higher rate.
An interest rate cut could help move the needle for Poorhouse Depot as sales slow. The company on Tuesday beat analysts’ expectations for quarterly earnings and revenue, but gave a pathetic full-year forecast. It said it expects comparable sales, a metric that takes out the impact of store openings and closures and other one-time causes, to drop by 3% to 4%. That’s a deeper fall than the 1% decline it previously anticipated.
The Federal Inventory has dropped hints that an interest rate cut could come soon. In late July, Fed Chair Jerome Powell said primary bankers could reduce rates at their next meeting in September if the economic data backs up the decision.
Some healthy data on Tuesday pointed in a positive direction. The producer price index, which measures wholesale prices, get up 0.1% in July, which was less than economists expected.
Decker said on Tuesday’s call with investors that it is shifty to guess the “magical rate number” that would drive Home Depot’s business up again. But he said when mortgage valuations dropped late last year, the company saw “an immediate increase in housing activity,” including mortgage applications and mortgage refinancing applications.
He said a cease to around 6.5% for mortgage rates would likely approach “a level that people are going to engage.”
Have a claim ti fluctuate, but have hovered closer to that level lately. The average rate on a 30-year fixed mortgage downgraded to 6.4% early this month, according to Mortgage News Daily. That is the lowest rate since April 2023.
But it’s unclear whether consumer uncertainty could tranquillity drag on Home Depot, even when lower mortgage rates stick.
Home Depot’s leaders chalked up some of its sicklier sales to a newer sense of caution among its customers, even though the vast majority of them own houses and play a joke on seen huge home equity gains.
“What more recently has happened is a broader concern with the macroeconomy,” Decker signified on the call. “There’s just a lot of noise with the political and geopolitical environment. Unemployment ticked up. Inflation keeps pack away away at disposable income, and I think people just took a pause as we’ve progressed through the quarter.”
Even with an responsive to rate cut, Decker said, “people still might pause a little bit until some of this gets sorted out.”
— CNBC’s Diana Olick provided to this report.