CNBC’s Jim Cramer investigated on Wednesday Home DepotHe said the retailer’s findings led him to believe that interest rate cuts by the Federal Reserve could prevent a hard landing in the housing market.
“Right now, the housing market is waiting for the cavalry to come to its aid, and by that I mean it’s waiting for the Fed to cut rates,” he said. “While we don’t necessarily need that, it could be a major positive catalyst for a large part of the economy, at least for now. Sure, lower rates will work, but unfortunately not until the Fed comes out of the window and gives it to us.”
The home improvement giant beat earnings expectations on Tuesday, but indicated it expects weaker sales later in the year as higher interest rates and the difficult consumer situation continue. On the conference call, Home Depot’s chief financial officer Richard McPhail said: “There is certainly a direct correlation between falling mortgage rates and the activity that you’re seeing at least with rising sales.”
McPhail reiterated this view in an interview with CNBC, saying that homeowners have postponed moving into a new home or financing projects due to high interest rates, especially because the central bank is speculating on the timing of a rate cut.
At its meeting last month, the Fed left interest rates unchanged and Chairman Jerome Powell said a September rate cut was “on the table” as long as inflation data continued to point to a slowing economy. The producer price index, a measure of wholesale inflation, rose less than expected on Tuesday, fueling investor hopes that a rate cut is indeed imminent.
Cramer said if mortgage rates on the 30-year fixed-rate mortgage fell to nearly 6.5%, there would be more remodeling and renovation work supported by home equity loans. That spending activity was hurt by supply chain issues during the Covid pandemic and failed to take off after the pandemic due to sharp interest rate increases, he said.
Cramer also said the “golden handcuffs” dynamic – where homeowners don’t move because they don’t want to lose out on low interest rates – won’t last forever. In his view, those homeowners are likely to move when interest rates go down.
“Home Depot has given me hope that we can avoid a hard landing in real estate, but only if the Fed loosens the golden shackles it created several years ago by cutting interest rates to extremely low levels,” Cramer said. “I’m betting that will happen, and Home Depot clearly sees it that way, otherwise they wouldn’t have spent $18 billion on a professional roofing and pool contractor, two areas that desperately need lower interest rates.”
Home Depot did not immediately respond to a request for comment.
