It wasn't that long ago - 2005, to be exact - that home prices in most parts of the U.S. were flying high. So to were sales by national do-it-yourself retailers such as Lowe's, and industry-leader The Home Depot.
Right here in Chicago, and all over the suburbs, contractors were busy completing new kitchens, baths, family rooms, and decks for many proud new homeowners.
Apparently, these home improvement retailers, and professional trades people, are seeing their businesses affected by the shifting housing market as well.
Some might think that a weak housing market might create a bit of a "bunker mentality" - "We're not buying, some might say, so we'll improve the house we now own!"
Countering that thought are recent studies indicating that the vast majority of home improvement dollars are spent within nine months of a new home purchase. Fewer homes purchased, few home improvement dollars spent!
Indeed, Home Depot saw its earnings fall 27.5% for the Fourth Quarter, 2007. Competitor Lowe's saw a 33% earnings decline. Sales of cabinets, fixtures, and materials for re-doing kitchens, baths, decks, and family rooms severely declined for both companies last quarter. Coupled with declines in prices for building materials, such as lumber and wall board, due to weakened demand, Home Depot's average customer sales ticket dropped below $55, and 2007 was the first year in Home Depot's 30-year history they posted an annual sales decline.
Many home improvement contractors also saw their business drop, as tightening consumer credit made it more difficult for many homeowners to tap home equity for home improvement funds. A couple of years ago, HELOC draws were as automatic as the sun rising for most homeowners.
Most building professionals see the home improvement slump mirroring the housing market shift, with weakness projected to continue at least through the end of 2008.
Read our post today on our BlogChicagoHomes.com Blog Center for more information, as well as relevant links to Mary Umberger's column in last Sunday's of The Chicago Tribune. We also linked to today's Wall Street Journal story by Mary Ellen Lloyd, discussing key sales and earnings figures for Home Depot and Lowe's.
DEAN & DEAN'S TEAM CHICAGO
You're right, it's the trickle down effect that's going to really kick our butts. I see it all over NW Ohio. It use to be if the real estate market was down, then home improvement stores and professionals were up. But I'm not seeing that as much as I thought I would. I think it's because value has gone down so much that owners are afraid to over-improve their property and not get that money back down the road. At least not soon down that road.
Hopefully these buyers who gare etting such great values on distressed and bank-owned properties will pump up the remodelling segment, which will then help to pump prices back up in these distressed markets. Not to record-setting values, though. Gone are those days. A neighborhood of well-kept homes, though, has a better chance of regaining its value than a neighborhood of houses falling aprt at the seams.
Nice chattin' with you, Dean.
Hugs, Dee
Very true words you speeak. We all get hurt by the slow market. Realtors, builders, Attornies, Title Companies, home inspectors, landscappers. The list could go on.