A rebound for Home Depot and Lowe's is 'still a ways off' even as rates ease, analysts say

By Bill Peters

The potential of lower interest rates is likely to be gradual and lack the 'oomph' needed to thaw the housing market, Oppenheimer analysts said

Oppenheimer analysts said Home Depot and Lowe's could still be feeling the fallout from a surge in renovations during pandemic lockdowns.

Lower interest rates might be good for the frozen U.S. housing market - but as they start to ease, Oppenheimer analysts on Thursday said not to expect a quick recovery for retailers whose fortunes depend on home sales and renovations, like Home Depot Inc. and Lowe's Cos.

The analysts said the potential of lower rates would "most likely prove gradual and lack [the] 'oomph' necessary to unlock dramatically a stubbornly stagnant domestic housing backdrop."

Coupled with tariffs, consumer unease, the current stock valuations of both chains and the aftereffects of the pandemic's home-renovation boom, the analysts said a recovery for both home-improvement chains was "still a ways off."

Shares of Lowe's (LOW) were down 0.5% on Thursday. Home Depot's (HD) stock was fractionally lower.

The Oppenheimer analysts, led by Brian Nagel, made their remarks after the Federal Reserve lowered interest rates this month and penciled in two more cuts this year. The Fed over the past few years has kept interest rates high in an effort to tamp down inflation.

But mortgage rates don't always move in line with the Fed, and higher mortgage rates and home prices have shut out many potential home buyers and tempered some home-renovation projects. The Trump administration has floated the idea of declaring a "national housing emergency" to help alleviate these issues.

The Oppenheimer analysts said that while lower rates generally boost demand for home-related purchases, there are often "significant lags" along the way. Thus, they said, lower rates are often "just a first step in creating a more accommodative demand backdrop for home-focused purchases."

The analysts also said there was a "disconnect" between the current stock valuations of both chains and the near-term prospect of weaker trends. Existing-home sales, they noted, were still tracking at multidecade lows, home-builder confidence isn't great and the supply of existing homes is still tight.

Meanwhile, tariffs, they said, remain "meaningful wildcards" for shoppers, as the costs of those import taxes start to show signs of pushing prices higher.

"In terms of Home Depot and Lowe's, we are generally optimistic that a combination of relatively limited overseas sourcing and significant consumer pricing power should allow the chains to manage challenges of higher input costs," Oppenheimer wrote.

"That said, we cannot discount entirely prospects for across-the-board price hikes to impact discretionary spending, broadly, and within the home-improvement sector," they continued.

Home Depot, during its earnings call in August, said that it would likely raise prices to cover extra tariff-related costs. But it said those price increases wouldn't be universal; company executives have noted that more than half of the products sold at the chain are sourced domestically.

Still, Home Depot management pointed to issues during that call. Lumber and copper prices were higher, for instance, while the company continued to see "softer engagement in larger discretionary projects where customers typically use financing to fund the renovation project," they said.

The Oppenheimer analysts suggested that after a surge in renovations during pandemic lockdowns, many homeowners might not be willing to take on new projects at the moment.

"As we contemplate factors weighing upon consumer demand within home-improvement retail, we cannot dismiss fully ongoing, postpandemic dislocations, resulting from a significant pull-forward in sales during the COVID-19 crisis, as people spent considerable time at home and were largely precluded from spending in many other, more service-oriented categories," they wrote.

While those effects were waning, the analysts said, they "could very well persist through 2025 and even into 2026."

-Bill Peters

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09-25-25 1351ET