In economic circles, it’s housing data week, as we prepare to ingest the latest building permits and housing starts data on Tuesday (April 19), followed by Wednesday’s sales report. of existing homes which is expected to show a 4% drop last month to a level not seen since February 2020.
Layer that on top of 8.5% inflation and a 30-year average mortgage rate that jumped about 70% in three months (from 3% to over 5%) and the decline in housing affordability begins no only to crystallize, but its grip on a range of retailers is also beginning to take shape.
Whether it’s the actual building of properties, moving to greater use of outdoor space, renovating kitchens, bathrooms and home offices or the subsequent furnishing that will along with all of this, the downturn is already sending shocks through the housing ecosystem.
“The broader housing environment continues to support home improvement,” Home Depot chief financial officer Richard McPhail said two months ago as the biggest hardware retailer discussed its results. of the fourth quarter with analysts at a time when mortgage rates were still below 4% and the war. in Ukraine and the related surge in inflation had not yet started.
Even so, the Atlanta-based chain was cautious in its outlook, but still optimistic that underlying metrics were still supportive. “Demand for homes continues to be strong and the inventory of existing homes available for sale remains near record highs, supporting continued home price appreciation,” McPhail added.
Since that February call, Home Depot shares have fallen another 10% at a time when the S&P Retail Index slid 4% and the broader S&P 500 rose nearly 1%. Even though Home Depot is now down 25% from an all-time high in November, it is still up 50% from March 2020 COVID lows.
Other Retail Rates and Categories
The Home Depot is far from alone, as a series of bank earnings from several of the nation’s biggest lenders have all provided more updates over the past week, which include more up-to-date information on the impact of rates and inflation on consumers, with mortgages at JPMorgan and Wells Fargo down 13% and 33% respectively through the end of March.
Although home loans are the largest, the impact of rising rates ripples through all categories, meaning the cost of buying something large has become a bit more expensive to reach, unless consumers have the ability to pay cash.
Rising auto loan rates have impacted some of the largest car dealership chains in the US, weighed on buying and stock prices, with shares of CarMax, for example, having fallen 40% since beginning of November.
As rates and prices rise, consumers’ use of credit cards to fill gaps in their budget has also increased, allowing shoppers to continue shopping at a pace they’ve become accustomed to in s expecting the energy shock to be short-lived. .
That resilience and willingness to spend was seen in last week’s retail sales data, which recorded a 0.5% increase for the month of March, a gain economists called ‘reasonable’. given the current circumstances, but warned that most of these gains were the result of inflation rather than an increase in demand.
To be sure the concern is widespread, as other brands linked to retail and discretionary spending, although they have yet to provide an update reflecting the post-war economic ramifications, have also struggled, with Amazon down 9% this year, TJX down 15% and sportswear leader Nike falling 20% so far in 2022.