Home-improvement stores rebound after morning dip

Home improvement retailers shares dip in morning on housing market concerns, bounce back

Associated Press

A number of housing-related retailers suffered a setback Monday morning when their shares fell on mounting concerns about the health of the housing market.

The market vastly improved in 2013 after a long period of weakness, and most economists expect home sales and prices to keep rising this year, but at a slower pace. Still, home sales began to slow in the fall and winter, as a tight supply of available homes, poor weather and a jump in mortgage rates over the summer kept buyers away.

Janney Capital Markets analyst David Strasser said in a research note that he believes higher mortgage rates, low-quality job growth and other pressures led to a weak end of 2013 for housing. Strasser says this could spell trouble for home-improvement retailers such as Home Depot and Lowe's ahead.

The analyst lowered estimates for both of the retailers for 2014. He said that both companies are "lagging indicators" with their sales peaking six to nine months after housing peaks, which means they could see a slowdown in 2014 if the market doesn't pick up soon.

While both Home Depot and Lowe's are strong, well-run companies, Strasser said that at their size, they are somewhat mature and impacted by the broader economy. Their share prices depend on beating the competition and market expectations, he said.

Home Depot Inc. and Lowes Companies Inc. shares fell in morning trading but by midday were in line with broader market trends. Shares of Atlanta-based Home Depot rose 5 cents to $76.50 by midday. Shares of Lowe's, which is based in Mooresville, N.C., increased 15 cents to $46.22.

However, shares of both companies are down about 7 percent thus far in 2014, compared with a less than 3 percent drop in the S&P 500 index.

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