It looks like the passion of Americans for remodelling their homes is cooling. Home Depot, a popular home improvement retailer has been benefitting from the robust demand for remodelling supplies even as other parts of the retail industry are slowing down. However, the increase in property values for the fifth year in a row is driving Americans to divert their spending elsewhere. It is also possible that they have run out of projects to complete.
The election of Donald Trump as the next American president and the speculations that he will increase government spending are affecting the shares of Home Depot because Trump’s agenda is likely to cause inflation and increase in borrowing costs. If mortgages go up, it will be harder for people to buy homes. Markets are responding to movements in interest rates off the bond’s market assessment of any future changes in the federal budget and the US economy.
Based on the assessments of Chief Financial Officer Carol Tome rising rates will slow down the housing market and since Home Depot is rate-sensitive stock, Home Depot has to increase its profit forecast because of a lower tax rate. Same-store sales will gain about 3% in the 4th quarter of the year but this will be lower than the rest of the year. However, the increase will be on top of the 7.1% gain in the 4th quarter of 2015. The two-year growth rate remains to be in line with the rest of the year.
If rates will rise, it will affect the housing market and it is also expected to impact on the home improvement industry. The prices of homes have been rising at a pace of about 5% for two years. There is also limited supply of homes on the cheap-end. If the US economy improves under the new administration, it will be good news for the home improvement sector.
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