- Home Depot’s chief financial officer said people are “moving on” from today’s high mortgage rates and have started investing more in their homes. The home improvement company reported strong fourth-quarter results, although CEO Ted Decker said consumers are still reluctant to make larger investments like a kitchen remodel. Experts say people may start to view today’s mortgage rates as normal, especially when compared to historic rates.
During the pandemic, buying a home became accessible for many Americans thanks to low mortgage rates in the 2% range. But by 2022, mortgage rates peaked at more than 7%, holding relatively steady throughout 2023 and 2024. Today, rates are still hovering around 6%, and one home improvement executive says Americans will start to adjust to this as the new normal.
“Housing is still frozen by mortgage rates,” Richard McPhail, Home Depot’s chief financial officer, told CNBC.
Yet McPhail said Home Depot, which reported strong fourth-quarter results Tuesday, has seen sales growth in nearly 80% of its U.S. geographic regions.
“They tell us their lives are moving on,” McPhail said. “Their families are growing. They’re moving for a new job. They’re upsizing their home. They want to upgrade their standard of living.”
Home improvement became a popular hobby when people were hunkered down during the pandemic, but homeowners have returned to renovating and upgrading their homes. While the U.S. economy shrank by 2.5% in 2020, spending on home improvements and repairs grew more than 3% to almost $420 billion, according to the Joint Center for Housing Studies of Harvard University.
“Home improvement always persists, and so the question, I think, will be around the mindset of whether long-term rates have gotten to a new normal,” McPhail said.
For the fourth quarter of fiscal 2024, Home Depot saw a 14.1% year-over-year increase in sales, which “exceeded our expectations,” Ted Decker, chair, president and CEO, said in a statement. Home Depot’s earnings also surprised Wall Street, beating analysts’ estimates, albeit by one cent per share in the last quarter, according to LSEG. Wall Street’s estimates for revenue were $39.16 billion, well below the $39.7 billion topline Home Depot reported.
“We saw greater engagement in home improvement spend, despite ongoing pressure on large remodeling projects,” Decker said in a statement. Still, customers have been conservative about investing in more expensive home improvement projects like remodeling a kitchen or installing new flooring, McPhail told CNBC.
Are current mortgage rates the new normal?
Although a 6% or 7% mortgage rate can feel painful for some homebuyers who remember the sub-3% rates of the pandemic era, mortgage rates that low were an anomaly.
Mortgage rates peaked at a whopping 18.1% in the early 1980s, but some current homeowners may have amnesia to that—or weren’t born or of homebuying age at that point. During the 1990s to the early 2000s, mortgage rates stabilized in the 7% to 10% range.
Still, economists have compared today’s housing market to that of the 1980s, even though mortgage rates were much higher. Today, buyers also face higher home prices and a housing affordability crisis—plus baby boomers’ reluctance to let go of their homes to downsize out of fear of higher mortgage rates.
“Our response is less to whether it’s 8% or 18%, but how much and how quickly has it changed,” Mark Fleming, chief economist with Fortune 500 financial corporation First American, previously told Fortune. “That’s what drives the behavior. We remember the 3.5% and 3% mortgage rates.”
And in terms of whether today’s mortgage rates are here to stay, other experts also point out that current rates are more in line with historical trends.
“The unusually low mortgage interest rates that we’ve seen in recent years is just that: unusual," Tia Boatman-Patterson, former housing director at the White House Office of Management and Budget, told The Street. "They were around for so long that people think that's how it's supposed to be. We have a different perspective, but we should look at historical trends over a longer period of time.”
