As mortgage rates are rising fast and negatively affect purchasing power, demand for housing is slowing down. These are the signs that Home Depot has noticed recently. In fact, after many years of constant recovery from the meltdown of the US housing market during the financial crisis of 2008, it is once again slowing down.
In fact, Lennar and D. R. Horton have issued warnings like this before. They already predicted the declining home sales as companies struggled with their supply.
The source of all this information about the slowing housing demand is Home Depot. Considered the largest chain of home improvement products in the entire United States, Home Depot is a source for the country’s power tools, lawnmowers, and home improvement help.
Suffering from a drop in shares of almost 4% on Tuesday morning, Home Depot was still lucky enough to recover its losses later during the session. Their statement of warning overshadowed their annual results of the third quarter of 2018, which were higher than expected.
Home Depot believed that impending trade tariffs would force the prices of many products to go up. In fact, in an interview, Carol Tome, Home Depot Chief Financial Officer, blamed the same gradually decreasing home service. Indeed, when there are fewer homes, there will be fewer customers for Home Depot.
In fact, in one formal session with some of the company’s analysts, Tome announced that the prices of the new homes were just moderate and should not be a source of worry. Moreover, other factors will most likely support Home Depot’s higher sales in 2018 as well as its positive outlook concerning 2018 and other future years.
As for this Atlanta-based home retailer, Home Depot is expecting its sales to increase by 7.4% by the end of the year 2018, which ends in January 2019. Home Depot’s earlier forecast was only 7%. This means that the change to from 7% to 7.4% will raise the expected price of the Home Depot share from $9.42 to $9.75.
In fact, according to a study by IBES data from Refinitiv, stores of U.S. Home Depot have gained 5.4 percent in sales at the beginning of fall 2018. This increase ended on Oct. 28, during the end of the third quarter of the year. This was primarily attributed to strong top-line products at Home Depot. However, an upsurge in home sales may not actually show the real state of the demand for home improvement. That’s according to Randal Konik, an analyst for Jefferies.
Still, for Home Depot, the problem is that higher tariffs slowed down the housing demand and will cause a 25% increase in the cost of Chinese imports by next year. Home Depot expects that the high tariffs could increase the prices by 3.5% on all the goods that have been imported to the USA from other countries.
Indeed, 2018 was still a good year for Home Depot despite its concerns about the rising costs of imports as well as the decreasing demand for housing in the USA. Home Depot was able to pick up during the third quarter with earnings rising by 32.4 percent (an increase to $2.87 billion). Overall, in the year 2018, net sales of Home Depot climbed by 5.1%, thus leaving Netflix with a net value of $26.3 billion. Nonetheless, Home Depot does not mention how the continued imposition of high tariffs can accept Home Depot itself beginning next year.
One thing the Home Depot is sure about is that if high trade tariffs continue between the US and China, the home improvement giant might decide to raise prices on some or many of its products.