A sign is seen posted outside a Home Depot store on February 21, 2023 in El Cerrito, California.
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Like Wall Street, House deposit is closely watching the Federal Reserve's next move.
In an interview with CNBC, Chief Financial Officer Richard McPhail said homeowners have been putting off moving into new homes or starting major projects that require financing because of higher interest rates. That wait has only intensified with a possible interest rate cut on the horizon.
“What our clients are telling their professionals is, 'Everything I read tells me that interest rates will be lower in three to six months,'” McPhail said. “Why should I borrow to finance the project now instead of waiting a few months?”
Chief Executive Officer Ted Decker also told investors on an earnings call Tuesday that many homeowners face a “golden handcuff dynamic” because they have mortgages as low as 3% and don't want to move, locking them into a higher rate.
An interest rate cut could help Home Depot improve its sales as sales slow. On Tuesday, the company beat analysts' expectations for quarterly earnings and revenue, but delivered a disappointing result. Full-year outlook. He said he expects comparable sales, a metric that strips out the impact of store openings and closings and other one-time factors, to fall between 3% and 4%. That's a deeper drop than the 1% decline he previously anticipated.
The Federal Reserve has hinted that a rate cut could be on the cards soon. In late July, Fed Chairman Jerome Powell said central bankers could cut rates at their next meeting in September if economic data supported the decision.
Some new data released on Tuesday pointed in a positive direction. The producer price index, which measures wholesale prices, rose 0.1% in July, less than economists had expected.
Decker said on Tuesday's call with investors that it's hard to guess the “magic rate” that would get Home Depot's business back up. But he said that when mortgage rates fell late last year, the company saw “an immediate surge in real estate activity,” including mortgage applications and mortgage refinancing requests.
He said a drop to around 6.5% in mortgage rates would likely be close to “a level that people will accept.”
Rates fluctuate, but they have remained close to that level lately. The average rate on a 30-year fixed mortgage dropped to 6.4% earlier this month, according to Mortgage News Daily. That’s the lowest rate since April 2023.
But it is unclear whether consumer uncertainty could continue. Home Depot, even as mortgage rates remain lower.
Home Depot leaders attributed some of their weaker sales to a new sense of caution among their customers, even though the vast majority of them own homes and have seen huge gains in the value of their homes.
“What's happened more recently is a broader concern with the macroeconomy,” Decker said on the conference call. “There's a lot of noise in the political and geopolitical environment. Unemployment is up. Inflation continues to undermine disposable income and I think people just took a pause as we got through the quarter.”
Even with an interest rate cut, Decker said, “people might still hold off for a bit until some of this is resolved.”
— CNBC Diana Olick contributed to this report.
