Home Depot Says More Homeowners Will Start Renovating as Mortgage Rates ‘Freeze’ Housing Market

Home Depot’s outlook is optimistic, with the company predicting that sales will grow as more homeowners stop putting off home improvement projects.

For the full year ahead, the company said it predicts total sales to grow by 2.8% as consumers will tackle home projects.

“Appliances and our gift center business, which had record sales,” are a big driver, says Bill Bastek, Home Depot’s executive vice president of marketing.

It also expects comparable sales, which take out the impact of one-time factors like store openings and calendar differences, and are also known as “same store” sales, to increase by about 1%. 

In its fourth-quarter earnings call for fiscal 2024, sales were $39.7 billion, an increase of $4.9 billion, or 14.1% from the fourth quarter of fiscal 2023. (The quarter had one more week than it did in 2023.)

Mortgage rates’ chilling effect on home improvement

“If you look at our customer, they remain very healthy. We look at our customer today, we think about $110,000 average income,” Home Depot’s CEO Ted Decker points out during Tuesday’s earnings call.

Those incomes have been growing, he adds. People will stay in their “homes longer” and “take on larger remodeling projects as opposed to moving.”

This comes as mortgage rates hover close to 7%. In a revised projection last week, Fannie Mae says it expects the 30-year fixed-rate mortgage to average 6.8% across 2025 and end the year at 6.6%.

That’s the second upward revision in a row for Fannie Mae, which in December projected rates to average 6.2% by the end of 2025, and bumped that up to 6.5% in January.

The high rates tamp down high price tag renovation projects.

“Housing is still frozen by mortgage rates,” said Home Depot Chief Financial Officer Richard McPhail in an interview with CNBC.

Due to rates and record-high home prices, the “lock-in” effect means that fewer people want to trade in their low interest rates for higher ones. This leads to a short housing supply and a slowdown in major renovation projects.

Remodeling instead of relocating

Home Depot executives agree that homeowners will start moving on those postponed projects in the coming year.

“We’ve started to see a little increase in each of cash-out refis (refinancing), as well as draws on HELOCs (home equity line of credit), but there’s literally trillions of dollars of equity built up in the U.S. housing,” says Decker.

“And as homes continue to age and people are staying in those homes and realize that we’re highly unlikely to see the low interest rates we saw over the past two, three years that they’ll eventually tap that equity and do the larger remodeling projects.”

The National Association of Home Builders agrees that 2025 will mean a better year for home projects.

“Remodeler sentiment has remained in positive territory,” said NAHB economist Eric Lynch at the International Builders’ Show in Las Vegas.

“One of the key factors for growth in the remodeling market is the aging housing stock, which continues to drive renovation projects. Homeowners are increasingly choosing to tap in to their home equity and invest in improvements rather than relocate, creating long-term growth prospects for the industry.”

Continuing housing affordability challenges mean that homeowners will remodel instead of relocate.

Extreme weather is good for home stores

Hurricanes such as Helene and Milton meant higher store traffic in those regions affected by extreme weather, where people have to fix damage to their properties, said the company.

Transactions rose to 400.4 million, up nearly 8% from the year-ago period. The average ticket was $89.11 in the quarter, up slightly from $88.87 in the prior-year quarter.

Online and delivery sales are strong

Online sales are still going strong. Digital sales rose 9% in the fourth quarter compared with the year-ago period, the strongest quarter of the year.

Meanwhile, the company has also pushed its focus more to professionals and contractors, and says that its roofing, drywall lumber, and power tool sales have increased. In addition, Home Depot’s delivery service has seen success.

“Same-day delivery, next-day delivery, whether that’s concrete and lumber or whether that’s a light bulb or power tool, it’s been really fast,” says Jordan Broggi, executive vice president of customer experience and president of online at Home Depot.

It remains to be seen whether the grass-roots movement calling for “economic resistance” with no buying from large corporations on Feb. 28 and other dates this year will have any effect on sales.

The next earnings call will be on May 20.