A recent Bloomberg article about Home Depot’s success is relevant to the Charlotte residential real estate market in a number of ways. In fact, one might assert that, “As Home Depot goes, so goes real estate.” If sales at the home improvement behemoth are a barometer for the housing market, the outlook is certainly upbeat.
Home Depot Sales Increase
Bloomberg reports that Home Depot’s quarterly sales increased in virtually every segment. In the most recent quarter, same-store sales increased 6.1 percent, the largest increase for that quarter since 2004. Every one of Home Depot’s 19 defined regions reported sales increase. Its top 40 markets, including Charlotte, saw higher sales. Led by “Tools,” every of of its product departments reported higher sales.
Home Depot’s CFO Carol Tome observed that, “This is proof, we believe, of continued recovery in the housing market.” Tome suggested that there is added room for improvement, since prices for U.S. residential real estate are still about 9 percent below pre-recession highs.
Home Improvement Projects a Sign of Homeowner Confidence
Historically, during a recession, many of the nation’s 74 million homeowners reign in spending as they focus on maintenance. By contrast, during periods of growth, the investment in home improvement projects increases. Homeowners see residential real estate values rising, and more of them decide to invest in this appreciating asset.
Why does Home Depot see sales increases at the same time that major retailers report sagging results? Because big-ticket purchases at Home Depot potentially decrease expenditures on consumables at major retailers like Wal-Mart. The statistics regarding big-ticket purchases at Home Depot are persuasive. During the last quarter, purchases under $50 rose a modest 3.2 percent, while purchases exceeding $900 increased a significant 6.8 percent.
Home Depot’s CFO also tells Bloomberg that she projects further strong sales growth in May, one of the chain’s most important months.
Household Formation and its Impact on the Charlotte Market
Another metric that Home Depot monitors is the new household formation that occurs when Millennials venture out on their own. This is more important than ever, because there’s been a long-term trend toward 19 to 31-year-old individuals remaining at home in ever greater numbers. For example, a 2013 Pew study suggests that 32 percent of those in this age group lived at home just before the recession, and that the number had now grown to 36 percent by 2012.
As the economic recovery continues, Millenials will move out and form more new households. This will stimulate the market for rentals and entry-level homes. In fact, Tome tells Bloomberg that she expects the formation of over one million new households across the United States in 2015 alone. Charlotte has been frequently recognized as one of the top cities in America for Millennials, so new household formation initiated by them is of particular interest here.
Greater numbers of new households established across the our metropolitan area may very well lead to further strength in the recovering residential Charlotte real estate market.