Home Depot Says It's Seeing Homeowner 'Fatigue' That Is Cutting Into Projects

Key Takeaways

• Fewer homeowners are hiring contractors for repairs and renovation, and some are selecting less expensive countertops, Home Depot executives said Tuesday.
• The retailer described this as a sign that its relatively affluent customer base may be growing fatigued.

Homeowners aren’t taking a siesta when it comes to projects—but they might be losing steam.

Contractors and home improvement professionals are adding fewer projects to their pipelines, and their clients are choosing less expensive materials, Home Depot (HD) CEO Edward Decker said Tuesday. The shifts aren’t tied to a given income group, Decker said on a conference call, but the big-box store has described its customer base as among the most financially stable in the country.

With “things like countertops, there’s been some trade down, but we have still not seen trade down across the broader assortment,” Decker said, according to a transcript made available by AlphaSense. There could be "some fatigue in taking on bigger projects," Decker said, citing signs that home-improvement businesses' backlogs are shrinking.

Why This News Matters to Investors

The economy has grown more reliant on affluent Americans in recent years, and home-improvement spending is a measure of that. Wealthy consumers' spending has been propped up by the stock market. A market correction—or further white collar job losses—may upset the momentum and strain the economy.

Home Depot's fiscal third-quarter (ended Nov. 3) results came up short of earnings and sales growth estimates. The retailer also lowered its earnings expectations for the fiscal year, citing headwinds including fewer storms spurring roofing and plywood sales; consumer caution amid economic uncertainty; and pressure on the housing market. Additional insight on homeowners' health may come out early Wednesday, when Lowe's is slated to report its own results.

Home Depot and Lowe's (LOW) have been telling investors for months that relatively high interest rates—and home prices that are out of reach for many—have deterred consumers from moving and undertaking home improvement projects. Lowe's previously said housing turnover was at a 30-year low, and today, Home Depot estimated it may be closer to a 40-year low. That's led consumers to put off some $50 billion in home repair and remodeling work, the retailers have said.

"We've clearly called out over time the most statistically relevant [demand drivers] would be home price appreciation and household formation and housing turnover," Decker said, according to the transcript. "Those three, right now, are pressured." (Home-price gains slowed in August, according to data reported last month.)

Comparable store sales in the U.S. ticked up 0.1% year-over-year last quarter. "Modest" price increases contributed to higher average spending, said William Bastek, executive vice president of merchandising at Home Depot.

The number of $1,000 or larger transactions rose 2.3% year-over-year, but that reflects Home Depot gaining ground with contractors, not consumers undertaking more large projects, the company said.

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