Strong home price appreciation in July, as shown in today's housing data release, likely means people will continue to spend freely on home improvement projects in the third quarter.
The median price of an existing home sold in July was $244,100, up 5.3% from a year earlier, said the National Association of Realtors said Wednesday. Price gains were the lone bright spot in the report. Existing home sales fell more than projected in the month after four consecutive months of impressive increases as a dearth of inventory constrained choices for would-be buyers.
It's easy to understand why investors would book profits on the surprisingly weak read for home sales. Steady home value appreciation, consistent job market gains, solid sales of existing homes and stock prices hovering around all-time highs have fueled the top and bottom lines of the nation's largest home improvement retailers this year.
With three out of the four macroeconomic variables still firmly intact -- home value gains, stock prices up, job market healthy -- the upbeat trends in the remodeling space will probably be sustained despite a one-month hiccup for existing home sales.
"If you just look at it, the fundamentals on the U.S. consumer are good such as more jobs, accelerating wage growth, low interest rates, great household balance sheets, big drop in energy prices, and rising home and stock prices. We feel pretty comfortable that people are taking that wealth [related to home price gains] and spending back in their homes," Home Depot Chief Financial Officer Carol Tome toldTheStreet when asked about the retailer's confident outlook for the balance of the year.
Home Depot's second-quarter sales rose 6.6% to $26.5 billion, beating the analyst estimate of $26.4 billion. U.S. same-store sales rose 5.4% following a blistering 7.4% pace in the first quarter. All product categories notched sales increases. Online sales surged 19% from the prior year.
The company lifted its full-year earnings per share growth outlook to 15.6% from 14.8% previously, and maintained that revenue should gain by about 6.3%.
Strength in the remodeling space at the hands of consumers feeling confident in their overall wealth has also become entrenched at the major vendors to home improvement stores.
At tool manufacturer Stanley Black & Decker (SWK) - Get Report , organic sales increased 4%, driven by 7% organic growth in its North American Tools and Storage thanks to a healthy construction tool market. Execs now expect the company to achieve 4% organic growth in 2016, up from a prior view for a 3% to 4% increase. Meanwhile, flooring manufacturing Mohawk (MHK) - Get Report saw sales at its North America flooring segment rise 7%.
Whirlpool's (WHR) - Get Report North American segment notched a 4% second-quarter sales increase, excluding the impact of the strong U.S. dollar. The appliance maker said it continues to expect that North America industry unit shipments will increase 5% to 6% this year. Best Buy (BBY) - Get Report notched an 8.2% same-store sales increase in its appliance business during the quarter.
The National Association of Home Builders reported recently its Remodeling Market Index (RMI) fell one point from the first quarter to 53, but still reflected positive renovation activity among remodeling firms. An RMI score above 50 means more remodelers have reported increased activity than have reported a decrease when compared to the previous quarter.