Home Depot Earnings: Bellwether for Home Sales?
Quentin Fottrell / SmartMoney
Home Depot’s (HD) strong fourth-quarter earnings give hope to bullish investors who think the store’s improving fortunes are an important barometer for the U.S. housing market.
The country’s biggest home-improvement store’s results were helped by consumer optimism that a recovery in the housing market may be finally underway, analysts say. Home Depot’s fourth-quarter earnings rose 32% to $774 million and its stock climbed more than 3% on Tuesday after hitting highs in recent days not seen since before the housing crash of 2008. “This is another sign that the economy is recovering and that the housing market may have reached its bottom,” says Odysseas Papadimitriou, founder and CEO of CardHub.com.
Housing experts say home Depot’s $16 billion-strong fourth-quarter sales are encouraging signs for the wider housing market. “If this was an isolated incident, I would not read too much into it,” Papadimitriou says, “but it seems to be another strong indication of a slow but steady housing market recovery.” He expects existing home sales to rise again in January — for the fourth month in a row. They spiked 5% in December, according to the National Association of Realtors. Susan M. Wachter, professor of real estate and finance at Wharton University of Pennsylvania, also says the NAR figures auger well for a bounce in the spring housing market.
To be sure, some experts say it’s too soon to celebrate. “Things are just too unstable to make me comfortable that this is truly a sign,” says independent retail analyst Jeff Green. Mike Mussio, portfolio manager at investment adviser FBB Capital in Bethesda, Md., says all eyes will be on Lowe’s fourth-quarter earnings, which are due next Monday. “It will be interesting to see whether other home improvement stores are experiencing the same strength,” he says.
Still, even cautious experts contend Home Depot’s sales are a good sign. “I don’t think we’ll be seeing a lot of housing sales picking up now, but I do believe there will be a lot of preparation to begin selling houses,” says David Abuaf, chief investment officer at Hefty Wealth Partners in Auburn, Ind. Many people who bought a house at the peak of the market have built up enough savings over the last three years to now buy big ticket items like new windows, says Mike Mussio, portfolio manager at investment adviser FBB Capital in Bethesda, Md. “I know because I’m one of them,” he says.