Is home improvement set for a quick rebuild?

Photos: Home Depot / Lowes
Mar 09, 2023

Home Depot recently forecast flat same-store growth for 2023 and Lowe’s predicted comps to be flat to down two percent. Officials, however, remain bullish on the long-term trends in the home improvement channel.

Marvin Ellison, Lowe’s chairman and CEO, speaking last week on the chain’s fourth-quarter call, cited three drivers behind his favorable medium and longer-term outlook:

  • Disposable personal income: Consumer savings remain roughly $1.5 trillion higher than the pre-pandemic level, with 85 percent concentrated in the top 40 percent of income owners who are more likely to be homeowners.
  • Home price appreciation: Home equities remain at record levels, at nearly $330,000 on average. Even with a modest price decline, the level of equity built up during the pandemic would remain significant.
  • Age of housing stock: Half of U.S. homes are over 41 years old, the largest figure since World War II.

Said Mr. Ellison, “These factors, along with strong millennial household formation, baby boomers’ increasing preference to age in place, and more widespread remote work will continue to be tailwinds for our business. And given the slowdown in housing turnover is driven by higher rates and low supply rather than demand, we continue to see a nationwide trend of trading up in place with consumers opting to upgrade their existing home to meet their evolving needs.”

Lowe’s expects a slight decline in the home improvement market in 2023 as residential investment faces pressures from elevated inflation levels, higher interest rates and a more cautious consumer.

On Home Depot’s quarterly call last week, CEO Ted Decker said he expects “a moderating year in 2023” with “price-sensitivity” intensifying in the second half of 2022 and spending shifting towards services.

On the upside, favorable dynamics supporting home improvement spending in the years ahead include the “fundamental shortage of housing” amid household formation and population growth, aging housing stock, a “healthy customer’ with growing wages, and low mortgage rates.

Mr. Decker said, “People are going to want to make more significant improvements on those homes. So, we remain and just couldn’t be more bullish on the longer-term view of this industry.”

DISCUSSION QUESTIONS: Do you see home refurbishment projects getting derailed by inflationary and macro pressures? What’s your outlook for the home improvement channel for the near, medium and long term?

Please practice The RetailWire Golden Rule when submitting your comments.
"I suspect the category will settle back into the pre-pandemic pattern."
"DIY projects are certainly desirable now. With high interest rates, moving to another house is less attractive."
"I’m generally bullish on the category but a lot of home improvements got done during COVID-19, so that means a slow down for the next year or two."

Join the Discussion!

13 Comments on "Is home improvement set for a quick rebuild?"

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Mark Ryski

Overall, I remain bullish on the category in the near-, mid- and long-term. This category was among the top performers before and during the pandemic — and it will remain a strong category. Inflationary pressure may actually work in favor of these retailers as more consumers take on DIY projects vs. hiring more expensive contractors.

Neil Saunders

I am not overly pessimistic about the home improvement sector. However I don’t share all of the sunny optimism. Over the past six or so months, sales from the consumer segment have been in decline — despite some of the positive metrics Mr. Ellison notes. This isn’t really surprising given the boom during the pandemic, but it nevertheless represents a change in the mood music. Home Depot and Lowe’s have been able to offset consumer weakness by stronger sales to the professional community. However this part of the market is also slowing which is why outlooks are much softer. All that said, both chains have held on to the vast majority of gains made during the pandemic which is why they remain long-term winners.

Gary Sankary

These categories exploded during the pandemic, when homeowners had the time and money to work on their homes. Now that we’re out and about again, I suspect fewer consumers will want to spend as much time on home improvement projects. I suspect the category will settle back into the pre-pandemic pattern. I do think inflation might have given a bit of a boost to the category as consumers who have “must-do” projects are more likely to do those projects themselves. In my house, that usually means more expenses down the road when the professional has to come in to repair my repair and then fix the original problem, but that might be just me.

Phil Rubin

Given the demand during COVID-19 and the scarcity of resources (materials and labor), plenty of homeowners weren’t able to do as much as they wanted during the past few years for those reasons. Therefore it’s reasonable to expect only a moderate slowdown from the macro issues. All that said, the two CEOs cited are clearly being smart in managing expectations and might be setting up to surprise on the upside, especially if the Fed gets things more right than wrong.

Doug Garnett

I expect inflation to drive a response as recessions have for home improvement. Contractor sales will drop but homeowner projects will increase as they save money. The forecasts here of “slightly down” sound about right. Overall, though, home improvement generally does well in DIY sales. That also suggests Lowe’s should do better for the next couple of years than Home Depot and HD will do better once contractor sales return.

Dave Wendland

I do not foresee this category slowing significantly. The outlook remains strong and there is still plenty of room for innovation!

I’d actually morph Oliver Wendell Holmes’ famous quote, “Man’s mind stretched to a new idea never goes back to its original dimensions,” to the home improvement channel, by saying, “A channel (or consumer) stretched to a new idea never goes back to its original shape.”

Rich Kizer

Home improvement will continue to see increased interest. This interest is primarily fueled by consumers that have spent many hours in their home, quite a few who work now at home. In speaking with home improvement store managers, they report that they are seeing a continual upward flow and intensity of consumer desire. There will be a continual uptick for this sector.

Ryan Mathews

I expect them to possibly meet expectations. I’m generally bullish on the category but a lot of home improvements got done during COVID-19, so that means a slow down for the next year or two. Then those home handy person repairs will begin falling apart and there will be a sales surge.

Camille P. Schuster, PhD.

DIY projects are certainly desirable now. With high interest rates moving to another house is less attractive. The price of remodeling and all house projects depends upon how high the prices are because of inflation and high interest rates. However the age of homes may force some home improvement projects regardless of inflation. Predictions for the future depend upon inflation and interest rates.

Craig Sundstrom

If we assume people are cutting back — and we keep assuming that, evidence seemingly notwithstanding — then discretionary spending is usually an early candidate. And home improvement, if not necessarily home repair, falls under that category. That having been said, it’s hard to gauge a forecast itself, since we don’t know precisely the assumptions that went into it (Mr. Ellison’s reasoning I don’t find particularly compelling as his three factors are true every year, good or bad … bullish indeed!).

Kai Clarke

The DIY home improvement channel is growing well, and will continue to do so both in the short and near term. There are few market forces in play to change this growth, and America is at record levels of employment. This has established a firm base for DIY and will continue to do so as America continues in its overall growth.

Georges Mirza

Overall, it will start to trend up once rate hikes slow down, and hopefully, rates slash later this year, assuming no major unknown events globally that could drive markets down. I believe the younger generation will start to inch closer to home ownership and take on the DIY approach to improve their purchased property for savings and affordability.

Christina Cooley

Inflation can lead to rising prices for building materials and labor, which can increase the cost of home improvement projects. This can make it more difficult for homeowners to afford the renovations they had planned or force them to scale back the scope of the project. However, at the end of 2022, in a pulse survey by J.D. Power, 56% of respondents indicated they were working on, or planned to start home improvement projects before the new year. The most popular projects continue to be painting, lawn/landscaping/garden, and bathroom and kitchen remodels.

"I suspect the category will settle back into the pre-pandemic pattern."
"DIY projects are certainly desirable now. With high interest rates, moving to another house is less attractive."
"I’m generally bullish on the category but a lot of home improvements got done during COVID-19, so that means a slow down for the next year or two."

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