A sign is seen on the exterior of a Home Depot store in El Cerrito, California, on February 21, 2023.
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Just like Wall Street, Home Depot We are closely watching the Federal Reserve’s next move.
In an interview with CNBC, Chief Financial Officer Richard McPhail said homeowners are putting off moving into new homes or starting big projects that require financing because of rising interest rates. With the possibility of rate cuts on the horizon, this waiting game is only getting more intense.
“What our clients are saying to the experts is, ‘Everything I’ve read says interest rates are going to come down in three to six months,'” McPhail says. “‘Why should I borrow money for my project now instead of waiting a few months?'”
Chief Executive Officer Ted Decker told investors on an earnings call Tuesday that many homeowners are stuck with mortgages as low as 3 percent and are locked into higher interest rates because they don’t want to move, facing a “golden handcuffs dynamic.”
The interest rate cut could help turn around slowing sales for Home Depot, which on Tuesday beat analysts’ expectations for quarterly profit and revenue but gave a disappointing full-year outlook. It said it now expects same-store sales, a measure that strips out the impacts of store openings, closings and other one-time items, to fall 3% to 4%. That’s a bigger drop than the 1% decline the company had previously forecast.
The Federal Reserve has signaled that a rate cut is possible soon: In late July, Fed Chairman Jerome Powell said the central bank could cut rates at its next meeting in September if economic data supports the decision.
Some of the latest data released Tuesday pointed in a positive direction: The producer price index, a measure of wholesale prices, rose 0.1% in July, less than economists had expected.
Decker said on a conference call with investors on Tuesday that it’s difficult to guess the “magic rate number” that will get Home Depot’s business going again, but he said that when mortgage rates fell late last year, the company “saw an immediate increase in housing-related activity,” including mortgage applications and refinance requests.
He said mortgage rates falling to around 6.5% would be closer to “the level where people would be interested.”
Rates fluctuate, but they’ve been hovering around that level recently: The average rate on a 30-year fixed mortgage fell to 6.4% earlier this month, the lowest rate since April 2023, according to Mortgage News Daily.
But it’s unclear whether consumer anxiety will hold Home Depot back, even if mortgage rates continue to fall.
Home Depot executives blame new caution among customers for the slump in sales, even though most of their customers are homeowners and home values have risen sharply.
“We’ve seen broader macroeconomic concerns recently,” Decker said on the conference call. “There’s been a lot of noise about the politics and the geopolitical environment. Unemployment is rising, inflation continues to eat into disposable income, and I think people are taking a breather as the quarter progresses.”
Even if interest rates are lowered, Decker said, “it might give people pause for a little while until this problem is resolved.”
—CNBC’s Diana Orrick contributed to this report.
