Concerns about the real estate market begin to emerge

Concerns about the real estate market begin to emerge

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Home Depot (HD) reported earnings and sales that exceeded Wall Street forecasts on Tuesday. Lowe’s (LOW) also reported better-than-expected earnings and sales on Wednesday morning, and CEO Marvin Ellison said in a statement that sales increased thanks to “widespread demand driven by continued consumer focus at home”.
Still, rising interest rates may eventually be a problem for Home Depot and Lowe’s. While the Federal Reserve is expected to keep its main short-term rate close to zero for the foreseeable future, yields on long-term bonds have started to rise. And mortgage rates are more influenced by the 10-year Treasury than by Fed rates.

In a sinister sign, Home Depot refused to give any guidance for 2021. Its shares fell 3% on the news.

“Rising demand for single-family homes has boosted turnover and home price appreciation,” said Home Depot chief financial officer Richard McPhail during a conference call with analysts on Tuesday. “However, significant uncertainty remains regarding the course of the pandemic, the distribution of vaccines, short-term fiscal policy and how these developments will affect the economy in general and, ultimately, consumer spending.”

For now, it seems that consumers are not too concerned.

The latest real estate market figures still show a healthy picture. Consumers are eager to find more space and are willing to pay higher and higher prices for homes.

S & P / Case Shiller and the Federal Housing Finance Agency reported a monthly increase of more than 1% in their latest housing price reports on Tuesday.

“Both surveys suggest a strong momentum and support our view that the housing market remains on a solid basis,” Blerina Uruci, an economist at Barclays, said in a report.

The strength of the housing market is also helping to drive up lumber prices, which has also boosted Home Depot. Ed Decker, the retailer’s president, said during the conference call that “during the fourth quarter, prices for both structures and panels” increased, helping to boost overall sales.

Forestry companies have also benefited from the housing boom and rising wood prices.

Two funds traded on a wooden exchange with the symbols WOOD and CUT – the iShares Global Timber & Forestry (WOOD) and Invesco MSCI Global Timber (CUT) ETFs – have each increased by more than 5% this year and both have gained over 25% in the past 12 months.

Builders remain confident that the housing boom will not end yet.

Toll Brothers (FOR ME) reported profits and sales after the market closed on Tuesday, which easily exceeded analysts’ expectations.

“The housing market remains very strong, driven by a limited offer of new and existing homes for sale, favorable demographic trends, low mortgage rates and a higher appreciation of home ownership,” said Toll Brothers CEO Douglas Yearley Jr. , in the launch profit. He added that he expects these market conditions to “continue for the foreseeable future”.

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