Next to Netflix, home renovation could be the biggest stay-at-home game of the pandemic.
From new home offices to expansive decks to basement gyms, homeowners have been upgrading and expanding their spaces at a record rate over the past two years. That trend seems to be slowing down.
After projected leaps in the first half of the year, returns on renovation spending will peak in the third quarter and then decelerate to a more sustainable growth rate, according to the Joint Center for Housing. of Harvard.
Abbe Will, deputy project manager for the Future of Remodeling Program and HJCH, said: “Increasing construction material and labor costs, difficulty retaining contractors and escalating interest rates may discourage owners. owners undertake new or larger remodeling projects”.
However, spending could hit $430 billion in the second half of this year, up nearly 20% from $357 billion at the same time last year. After that, spending is expected to grow 17% year-over-year in the fourth quarter. The pre-pandemic annual increase was in the 1% to 3% range.
Home improvement retailers posted big gains last year, factoring in their earnings as inflation eats away at profits. Lower demand could exacerbate that. Stocks of names like Masco, Sherwin Williams, Lowe’s and Home Depot All are down year-to-date and down more than the broader markets.
In her latest earnings release, Sherwin Williams cut her full-year forecast citing supply chain problems the company is expected to continue. “We will continue to take appropriate pricing actions to offset increased costs,” CEO John Morikis said in an analyst call.
Laura Champine, senior analyst at Loop Capital Markets, downgraded both Lowe’s and Home Depot last fall, based on a call for future home remodeling business fundamentals. Champine is seeing that happening right now.
“We’re not going to get the same stimulus as last year, last year and two years ago, everyone has to find a home office, a home school, and that’s not going to happen again,” Champine said in an interview. Interview on CNBC. Friday Power Lunch.
“Those big remodels are what drives the bus and that’s where the profits are made. You’ll still see Home Depot and Lowe’s guys will still buy duct tape, they’ll need the light bulb, but if you don’t come, It’s there to refresh your kitchen and bathroom and you’re not going there to replace your flooring, it’s rough. So that’s a leading indicator of sentiment around these stocks.”
The latest guide from Lowe’s is below expectations. The company’s chief financial officer, Dave Denton, said that while it is expected to outperform competitors, the company is bracing for a “modest retracement in the sector in 2022.”
However, builder confidence in the remodeling market increased in the fourth quarter of last year, according to the National Association of Home Builders. However, there was a word of warning.
“It is important to note that the survey data was collected in late December and early January and does not fully capture recent rate hikes,” said NAHB Chief Economist Robert Dietz. “Going forward, NAHB expects remodeling to continue to grow in 2022, although not as rapidly as in 2021.”
