Aging homes with higher values could help Home Depot and Lowe’s this

Spring has already arrived at some Home Depot and Lowe’s stores, as the companies roll out displays of backyard grills, lawn and garden supplies and power tools.

The retailers are gearing up for the home improvement industry’s peak selling season: Warmer weather months when homeowners and contractors tend to tackle more projects.

Yet the change of season is not the only factor driving demand. The country’s aging housing stock is forcing homeowners to replace roofs or burst pipes — and rising real estate values are inspiring some to splurge on additions or remodels after seeing a neighbors’ house sell for a high price. About half of single-family homes in the U.S. were built before 1980, according to data from the Federal Home Loan Mortgage Corporation. Home price appreciation averaged 15% for the full year in 2021, more than double the 6% appreciation the year earlier, according to CoreLogic.

Zack Fadem, a retail analyst for Wells Fargo, said Home Depot and Lowe’s will go up against “two years of really robust growth” — including two spring seasons with favorable weather in much of the U.S.

“Everybody is trying to get a sense of whether the industry can still grow,” he said. “As we think about where we are today and looking out into 2022, the questions that I think will arise are: ‘How will interest rates impact demand for new homes? Will project demand remain elevated for existing homes? And will the consumer continue to be able to absorb the six to seven percent-plus points of inflation?'”

He said he expects real estate dynamics to keep home improvement spending elevated — even if Americans ditch the pandemic hobby of do-it-yourself projects and hire contractors again.

Another indicator looks promising for the retailers, too: Customers are already buying lawn and garden supplies.

Scotts Miracle-Gro reported a stronger-than-expected fiscal first quarter last week, saying that consumer purchases at its largest retailers rose 9% in dollars and 3% in units versus a year ago, on top of double-digit growth in the year-ago period. Nearly 40% of the company’s total sales come from Lowe’s and Home Depot.

Lowe’s and Home Depot report fiscal fourth-quarter earnings later this month.

Lowe’s said it anticipates total sales of between $94 billion to $97 billion in fiscal 2022, which is one week longer than fiscal 2021. It said it expects total sales in fiscal 2021 to be about $95 billion. Its comparable sales are expected to range from a decline of 3% to flat.

Home Depot has not shared a forecast for 2022.

Home Depot recently named a new CEO. Company veteran and Chief Operating Officer Ted Decker will step into the role in March, but the retailer has not indicated a change in strategy.

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