Lowe’s Lays Foundation for Housing Rebound

Rejoice, millennials: The CEO of Lowe’s has good news to share.

In an interview with Barron’s published Friday, the home improvement retailer’s top boss, Marvin Ellison, said a rebound is inevitable in the something’s-gotta-give US housing market, and that his company is well-positioned for the much-awaited development when it comes to pass. On the other hand, Ellison also stressed that if a rebound doesn’t happen, Lowe’s will be well-positioned just the same. Our advice to weary would-be homebuyers: Take the hope, and leave the caveats behind.

Eyes on the Prize

An ultra-soft housing market has largely placed a heavy lid on the home improvement sector, though Lowe’s isn’t the first in the space predicting a tilt in buyers’ favor. In its second-quarter earnings call last month, Home Depot stuck by its full-year guidance even though its sales figures missed analyst expectations through its first two quarters — essentially betting a housing turnaround in the second half of the year would spur more business. Ellison agreed, saying that if a possible cut in interest rates at the Federal Reserve’s next meeting later this month coincides with mortgage rates dropping below 6%, it will likely have a “psychological effect” on would-be buyers and spur movement in the housing market. 

If the Fed doesn’t cut rates, Ellison says a rebound is still a matter of when, not if. Citing internal Lowe’s data, Ellison said the US housing market will need 18 million new homes by 2033 to keep up with demand, adding, “We know the inflection in housing is coming. We just don’t know when.”

Whether that’s a long time or a short time, Ellison says Lowe’s is poised for success:

• Like Home Depot hinted in its recent earnings report, Lowe’s says it will succeed even if the market thaws later rather than sooner, thanks to a rapid rise in home equity among existing owners that could be reinvested into home improvement projects. Ellison called it a “locked-in” mindset (as in, locked-in to low mortgage rates from a prior era) that could be fueled by home-equity lines of credit.
• Ellison also said the company has pivoted to expand its market to professional contractors, highlighting the company’s $1.3 billion acquisition of Artisan Design Group in June and the $8.8 billion acquisition of Foundation Building Materials last month.

Home Improvement Improvement: Ellison said the pro market now accounts for roughly 30% of the company’s revenue, up from 19% in 2018. It’s essentially a bet on a rebound in the housing market — one that Lowe’s is not alone in making. Home Depot has also made splashy acquisitions in the space recently, and said in its most recent earnings report that the pro market accounts for 45% of its sales. Fittingly for the home improvement retail industry, Lowe’s and Home Depot both seem focused on keeping up with the Joneses.