Housing Trend has retail at Edge

In business cycles this is housing data week as we prepare to receive the latest data on building permits and housing starts on Tuesday (April 19th), followed by Wednesday’s report on existing home sales which is expected to drop 4 % last month at a level not seen since Feb. 2020.

It overlaps with inflation of 8.5% and an average mortgage rate of 30 years that has jumped by about 70% in three months (from 3% to more than 5%) and the reduction in the affordability of housing not only begins to crystallize, but the handle its in a range of retailers is also beginning to take shape.

Whether it is the actual construction of real estate, the shift to greater use of outdoor space, the renovation of kitchens, bathrooms and offices in the home or the consequent furniture that accompanies all this, the slowdown is already causing shock to the housing ecosystem.

“The wider housing environment continues to support home improvement,” said Home Depot chief financial officer Richard McPhail two months ago as the largest hardware retailer discussed its fourth-quarter results with analysts at a time when mortgage rates were still below 4% and the war. in Ukraine and the relative rise in inflation had not yet begun.

Even so, the Atlanta-based chain was wary of its prospects, but still optimistic that the underlying measurements were still favorable. “Demand for housing remains strong and the existing stock of available-for-sale homes remains near record lows, supporting the continued appreciation of housing prices,” McPhail added.

Since that February call, Home Depot shares have fallen another 10% while the S&P Retail Index has fallen 4% and the broader S&P 500 has risen almost 1%. Although Home Depot has now fallen by 25% from an all-time high in November, it is still 50% higher than COVID-19 lows in March 2020.

Other Retail Prices and Categories

Home Depot is not alone, as a number of bank profits from several of the country’s largest lenders provided more updates last week that include the latest information on how interest rates and inflation affect consumers, with mortgages in JPMorgan and Wells Fargo fell 13% and 33% respectively by the end of March.

While mortgages are the largest, the impact of rising interest rates is declining across all categories, which means that the cost of buying anything large has become a bit more expensive, unless consumers can afford to pay in cash.

Rising interest rates on car loans have affected some of the largest car dealership chains in the US, have affected markets and stock prices as CarMax shares, for example, have fallen 40% since early November.

As interest rates and prices rise, consumers’ use of credit cards to fill budget gaps has also increased, allowing shoppers to continue shopping at a rate accustomed to the expectation that fuel shocks will be short-lived. .

This resilience and willingness to spend was reflected in last week’s retail sales, which rose 0.5% in March, a profit that economists called “reasonable” given the current situation, but warned that most of them profits were a result of inflation rather than increased demand.

To be sure, the concern is widespread as other brands associated with retail and discretionary spending, while not yet providing an update that reflects the post-war financial impact, have also struggled, with Amazon down 9% this year. TJX lower by 15% and the leading sportswear company Nike with a drop of 20% so far in 2022.

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