Could Lowe's profit jump be a sign of a housing remodel spur?

by MPA24 Nov 2014
Lowe's, one of the largest home-improvement retailers in the United States, has posted third-quarter earnings that exceeded expectations as homeowners continued to grow confidence in the housing market.

The retailer's net income rose 17% to $585 million in the third quarter, up from $499 million the same time a year ago. Lowe's sales rose 5.6% to $13.7 billion, topping the average projection.

As home values have continued to rebound over the years, Lowe's has added new employees in its stores to help customers with renovation projects. Existing store sales increased by 5.1% in the third quarter compared to the 4.1% average estimated by Consensus Metrix.

Last month the National Association of Home Builders (NAHB) reported its remodeling market Index (RMI) reclaimed the high-water mark of 57 in the third quarter, marking the sixth consecutive quarter for an RMI reading above 50.

An RMI above 50 indicates that more remodelers report market activity is higher (compared to the prior quarter) than report it is lower. The overall RMI averages ratings of current remodeling activity with indicators of future remodeling activity.

“Most remodelers remain confident that the market is improving as homeowners undertake renovations— large and small,” said NAHB Remodelers Chair Paul Sulliva of Waterville Valley, New Hampshire. “The consistency and longevity of positive RMI readings are in line with the gradual recovery of the housing industry.”

The RMI’s future market conditions index rose to 58 from 56 in the second quarter. All four of its subcomponents—calls for bids, amount of work committed for the next three months, backlog of jobs and appointments for proposals—increased or remained level with the previous quarter’s reading.

The current market conditions component of the RMI increased one point to 57 this quarter. A two-point gain was made among the categories of large additions as well as smaller remodeling jobs with readings of 56 and 58, respectively.

“The stabilization of the RMI in the mid-50s for more than a year demonstrates the slow, steady recovery of the housing industry that we expect to continue,” said NAHB Chief Economist David Crowe. “The major headwind to a stronger recovery is a shortage of qualified labor and subcontractors in some parts of the county, making it difficult for remodelers to employ carpenters and finish projects as quickly and economically as many of their customers expect.”

Check back next week as MPA begins its renovation loan series that looks at the state of the market and how you can increase your business.


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