Housing Market Strength is the Key to Robust Economy

The recovery in the housing market helped drive better-than-expected earnings growth in the latest quarter for Home Depot. Sales rose 5.1 percent at stores open for more than a year, including 7.3 percent in the U.S. Shares of Home Depot are up more than 23 percent over the past year.

The continuing improvement in the housing market, which has yet to fully recover from the recession, is helping Home Depot and its rivals overcome softness seen at other retailers.

“There has been a ton of deferred maintenance in existing housing that is now being tended to, with home values continuing upward," said Collingwood Group Chairman Tim Rood. "When homeowners are underwater, they are aren't likely to throw good money after bad to fix up their houses. It would be like filling up the tank in a car you just wrecked.”

Weak earnings reports from Macy’s and Nordstrom have raised concerns for this holiday shopping season. However, earnings at stores like Home Depot show consumers are more willing to spend money replacing windows, and doors than to splurge on clothing and other goods.

Home prices in 20 U.S. cities rose at a faster pace in the year ended in August, a sign the industry continues to strengthen on improving demand. The S&P/Case Shiller index of property values climbed 5.1 percent from August 2014.

Sales of existing homes jumped 4.7 percent in September, according to The National Association of Realtors, indicating that demand for housing remains steady. Meanwhile, housing starts rose 6.5 percent in September, according to the Commerce Department.

Many brick-and-mortar retailers blame e-commerce for slowing foot-traffic. Home Depot’s report seems to refute that, as stores saw a 4.4 percent increase in the number of customer transactions during the third quarter. The average purchase size grew as well, gaining 0.8 percent to $58.03. Home depot also exploits a benefit that other retailers may not. The company says 43 percent of orders made through its website are pickled up in stores.

Home-improvement retailer Lowe’s has followed Home Depot in reporting better-than-expected profit in its third quarter, with more customers visiting stores.

During the third quarter, Lowe's said its same-store sales rose 4.6 percent, with sales at U.S. based Lowe’s stores rising 5 percent.

"Comparable sales growth was driven by gains in both transactions and average ticket, while our focus on productivity and profitability also allowed us to deliver strong earnings per share growth," said Lowe's Chief Executive Robert A. Niblock.

Overall, Lowe's posted a profit of $736 million, or 80 cents a share, up from $585 million, or $0.59 a share, a year earlier. Net sales grew 5 percent to $14.36 billion.

Rood, also a former Fannie Mae executive, noted, “Clearly an improving housing market is key to a stronger economy.”

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