Home Depot (HD) Says Housing Will Hold The Line

Home Depot (HD) had a fairly poor quarter, but it was a bit better than expected.

What was more important is that it held to its guidance for the rest of the year, a sign that the data from its retail outlets shows that spending on housing is not getting worse.

That notion is contrary to much of what economists and analysts are predicting about home values and the capitulation of home owners faced with difficult conditions.

While the information from Home Depot is not a perfect litmus test, it does say that consumers are willing to invest in their homes. That is almost certainly a sign that they feel housing prices will move back up soon or that they can improve the value of their homes by investing in them.

The deep pessimism of homeowners may be overestimated.

For its quarter ending August 3, Home Depot net income dropped 24% to $1.2 billion, or $.71 a share, with sales down 5% to $20.99 billion and same-store sales down 7.9%.

The home improvement company did not move it guidance down one iota. For the year, the firm expects earnings per share from continuing operations to drop 24% and sales to fall 5%, in line with earlier guidance.

Based on rising foreclosure rates and falling home prices it would have been logical to assume that HD would revise its view of the future down. As the largest retailer in its class, it should be the best bellwether of consumer sentiment about the health of the housing market for the rest of the year.

Housing may not be in as much trouble as the conventional wisdom indicates.

Douglas A. McIntyre