More room for improve­ment

Tri-City Herald - - Business -

Higher mort­gage rates and steadily ris­ing prices have pumped the brakes on the U.S. hous­ing market in re­cent months.

The trend has stirred con­cerns among some in­vestors that home improve­ment spend­ing could also slow, dim­ming the earn­ings prospects for Home De­pot and Lowe’s.

A re­port last month by Har­vard Univer­sity’s Joint Cen­ter for Hous­ing Stud­ies pro­jected that an­nual spend­ing growth on home-improve­ment and re­pair will fall next year, from

7.5 per­cent last quar­ter to

6.6 per­cent in the third quar­ter of 2019.

While the trend isn’t fa­vor­able for ei­ther com­pany, in­vestors shouldn’t over­es­ti­mate the im­pact, says Robin Diedrich, se­nior an­a­lyst at Ed­ward Jones.

Around 75 to 80 per­cent of the re­tail­ers’ busi­ness comes from re­mod­el­ing that isn’t tied to home sales, ac­cord­ing to Diedrich’s es­ti­mates. Ex­ist­ing home­own­ers, many hav­ing locked in ul­tra-low mort­gage rates, have more in­cen­tive to in­vest in up­grad­ing their homes.

“The big­ger risk long-term is if in­ter­est rates rise enough to slow down the econ­omy in gen­eral,” Diedrich says. “On a rel­a­tive ba­sis, the home­im­prove­ment space looks to us as a place to in­vest.”

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