Housing Data think tank (previously HD DD)

Welcome to another Navi DD I hope this leaves more of you less confused this time around, and I had to finish this so Conq could suck a fat tiddy. :pepepray:
This time we’re talking about Home Depot!
I’ve gone ahead and just marked some basic structure lines on the chart and wanted to expand on a few interesting points I’ve found.

First off this is the data that came out today (Sep 14, 2022)

So 30 year mortgage rate is back at the same rate it was at… in 2008 (By the way its fine and dandy to do a bunch of legwork on DD. But usually someone has done it for you.)

"The Mortgage Bankers Association said 30-year fixed rates for conforming loan balances of less than $647,200 rose 7 basis point to 6.01% for the week ending on September 9, a move that takes that headline rate to the highest level since the nation’s housing bubble burst in November of 2008.

The MBA’s seasonally-adjusted Purchase Index, which tracks mortgage applications for the purchase of a single-family home, rose just 0.2% as buyers backed away from new transactions amid the surge in borrowing costs, while new applications were down 1.2%.

The MBA said its refinancing index slumped 4.2% ahead of next week’s expected 75 basis point increase from the Federal Reserve, with bets on a 100 basis point hike now accelerating quickly.

“Higher mortgage rates have pushed refinance activity down more than 80 percent from last year and have contributed to more homebuyers staying on the sidelines,” said Joel Kan, the MBA’s associate vice president of economic and industry forecasting."

Also,

"A lack of new supply is adding to the pressures, as well, with U.S. housing starts hitting a one-and-a-half year low in July, thanks in part to surging mortgage rates and elevated construction costs.

The July slump included a 9.6% decline in the seasonally-adjusted annual rate, which was pegged at 1.446 million units, and a 10.1% plunge in single-family home starts, the largest component of the domestic housing market."

A big market Data point to look for next week (outside jobless claims this week) is the
NAHB Housing Market Index on Monday (Sep. 19th)

In case you skipped the text here it is again:
NAHB/Wells Fargo Housing Market Index (HMI) is based on a monthly survey of home builders. They are asked to rate current sales of single-family homes and sales expectations for the next six months and to rate traffic of prospective buyers. Scores for responses to each component are used to calculate a seasonally adjusted overall index, where a number over 50 indicates more builders view sales conditions as good than poor.

In August we dropped below that critical 50 level where home builders are starting to see sales conditions as poor. Wonder if there are any builders that are slowing down or halting building?

Well fuck I’m glad you asked cause the following day (Sep 20th) we get our building and housing permit reports! God damn you’re fucking lucky I like you.


Mainly housing came in under the consensus (and not just a little bit the unit here is MILLIONS, so we were under 100k housing starts when the market already doesn’t have enough supply). One of you idiots is gonna say something about Cali having plenty and yeah thats cause no one wants to live there.

Building permits is somewhat similar but not as telling of the markets reaction to rising rate hikes

Well what about the existing home sales Navi?
Its the very next day you lucky duck you (alongside FOMC) which will ultimately be the big mover since the rate hike decision will undoubtedly heavily affect Home Depot’s main driver of business (Being the Pro customers).


For a strong economy you’d expect to see some more home purchasing right? Well inflation is sneaky my fairweather friends.
After the rate decision being Sep 21st I think you could probably allow about a few days for the market to mull it over and figure out where exactly the market wants to put its money.
This is why some of you may heard Beak and I talking about taking a position today (Which ended red :kekw:) but they are for Sep 30th!
No price targets in this DD unfortunately. I just think this is a good playbook for looking at how to play the upcoming week and following week after FOMC and the rate decision.

If you don’t give a fuck about ER calls don’t worry about this next part:

So I listened to their Q2 call and heres the gist:
They reaffirmed that the sales from July were weak due to seasonal reasons (pretty interesting to say when you look here, which doesn’t include pro, or HD Supply as they call it).

So I mean lets be real about the conditions that high interest rates come with that could effect Home Depot’s big customer base (their “DIY” customers, people like me and you who don’t do manly shit like build or remodel your entire house yourself… Not everyone can be my father :yong:). With higher interest rates all those numbers that lead up to the interest rate hike will more than likely get worse (not better no matter the rate hike decisions). But the effects of the past couple rate hikes probably are just starting to truly be felt in the mortgage market, housing permits, and all of the fun real estate things. The biggest spenders with Home Depot are undoubtedly going to be new home owners. They’ve gotta buy all the incidentals and random shit you need (appliances, door mats, a fly swatter to kill those pesky SwoleFlys). Existing home owners add to that demographic when they sell their home and move and with rising interest rates I’m heavily doubting a lot of people are looking to get into a home anytime soon. This isn’t a DD for their upcoming ER but it may be a possibility when these numbers come out.

11 Likes

without going into too much detail, one of my work’s main verticals is residential home building and we’re actually seeing a continued pace of development going on. It’s actually one of our fastest growing segments and there’s still bids on projects happening years out with huge backlogs. Not discrediting the bear thesis but from my point of view this could mean HD still has strong demand.

5 Likes

my father is a master tradesman and inspector for a few municipalities. he was complaining to me that his towns were giving him a crazy number of inspections. i would say though that this and HD can be a lagging indicator of sorts - homes take a long time to build.

3 Likes

That could definitely be you being in a market that is growing. Not sure I posted it in here but some areas slowed down a ton and some blew the fuck up for residential buildings. But if you are nationwide then yeah those points may be invalid. Nonetheless appreciate the insight!

2 Likes

Found it was from previous housing starts

2 Likes

Stupid TA? Maybe. But it looks like HD over the past couple of years has actually been a leading indicator of housing starts when looking at the monthly charts for the two of them (HD is orange, starts is blue). The start of the fall of HD in recent months could actually be a harbinger of things to come in the housing market.

5 Likes

To add to this (I worked for architects for a long time) most home builders wouldn’t use HD for material. Lumber yards and supply houses would be their first choice. HD is usually for very small scale projects.

2 Likes

Firstly great read. Look forward to some more colorful DD.

Im actually bullish as fuck on HD however. As one of the most consistent strong trending retailers there is. They have a large loyal customer base. And seeming growth of store fronts. Also my preferred big box home improvement store.

All great data points above however I think home building slowing is actually to the bull side of HD if you can’t buy a new one and yours is broke. Where you going to fix it ? HD is one of the many. With mortgages rates climbing a lot more people would be apt to remodel/expand their current houses based upon needs as opposed to searching new property. That starts with a home improvement store.

2 Likes

I agree with you in this. My perspective is anecdotal but I have some insights.

I know someone that does home remodeling and HD is strictly for “we need this tool” or some either minor item. His materials are usually coming from large wholesalers.

I also have a close friend that works for a company that remodels retail stores. They won’t get any supplies from HD and in the event they need some materials he said companies they work with prefer Lowes.

2 Likes

Yeah absolutely I agree with the sentiment that overall bullish on HD. But with the rising interest rates and inflation and rising CPI I think it’s easy to forget that even in a market where you can’t buy a new house and your current one is broke: do you have the same purchasing power to manage the other aspects of your life and also remodel your house in a recession? For most the answer is likely no.

2 Likes

A lot of times home buying with growing families etc is a necessity not just a want. So typically home expansion or remodel could be out of that nature as well.

Frankly Us consumers will always find away to manage to pay for a necessity or even a want. Many atimes these home improvement stores offer 0 financing.

For example if I am having another kid and needed larger house. Would I go pay 6 percent on a 30 year mortgage at an inflated price.

Or do I pony up 20k to build addition on my current house at 0 percent.

I think we are on a path to profitability here. Just not certain bear fucking HD is the one. But also I am wrong a lot.

1 Like

Yeah absolutely I doubt that HD is the best actual “target” as there is always a more direct avenue to target absolutely. The other thing I didn’t see in the economic data was amount of purchased homes that are converted to rentals. Cause that could have a big impact on HD as well and the Dodd Frank Act repeal would likely cause some reduction in spending if rental share of the market increases (cause you can’t remodel a house you don’t own)

3 Likes

What I want to add is a bit of comparison to the 2008 crash.

Home Depot went down 30% in early 2008 from a $30 stock to under $20. It did not reach it’s low until almost the end of 2008 at $12-ish.

During that time the housing price tanked ~50% in the areas around me, and to even more in other areas across the US. Housing price tanks when no transactions take place, which was the case back in the 2008 crash where people were too afraid to buy.

I personally hope to have a housing crash similar in magnitude but realistically I don’t think it will be nearly be as bad. Which in turn will probably have less of an effect on Home Depot stock price.

5 Likes

Well done Navi and tram! Interesting interview on QT set to be seen Sept 15 and also related to mortgages.

Let’s also look towards HD competitors and correlation of ER dates prior to HDs. Lowes and Walmart. Also with HD, I think their credit cards are through CITI so we should track that too. Just some thoughts. I’m looking forward to this play biggly!

3 Likes

That’s a good point. I don’t know where to find purchase to rental numbers. I’d say that rental numbers will likely go up in coming months as people likely can’t afford to buy houses as much.

However someone maintains the property IE landlord likely would shop at lowes HD menards etc. I would think but then again if times are tough landlords will pinch pennys as well affecting these large stores I’d think.

3 Likes

Yeah that’s how I’m feeling as well for the market. Don’t think it’ll be as bad but definitely somewhere around 20% hopefully. Good point tho on relativity of how this impacted HD.

3 Likes

Lowe’s dominates in that they offer a “contractor discount” whereas Home Depot does not. That’s why they aren’t a good candidate for bulk material purchases.

4 Likes

Yeah that factors in to less spending overall since rentals get thrashed. I wouldn’t put nice stuff in unless I knew it couldn’t be fucked up

3 Likes

May be worth noting DRV came up as a possible target instead of HD will adjust as I look into it. (It’s also 3x bear leveraged shares)

3 Likes

It had a nice little 4% bump today

1 Like