CNBC’s Jim Cramer on Wednesday examined Home Depot ’s earnings report, saying the retailer’s insights make him think interest rate cuts from the Federal Reserve could stop the housing market from making a hard landing.
“Right now, housing’s waiting for the cavalry to come to the rescue, by which I mean it’s waiting for the Fed to cut rates,” he said.
The producer price index, a measure of wholesale inflation, rose less than expected on Tuesday, stoking investors’ hopes that a rate cut is indeed imminent.
According to Cramer, if mortgage rates were to come down close to 6.5% for the 30-year fixed, there would be more remodeling and restoration work bolstered by home equity loans.
Cramer also said the “golden handcuff” dynamic — where homeowners won’t move because they don’t want to lose low interest rates by doing so — won’t last forever.
Examining Home Depot’s earnings report on Wednesday, CNBC’s Jim Cramer expressed his belief that the retailer’s insights allow the Federal Reserve to halt the housing market from hitting a hard landing through interest rate cuts.
He stated that the housing market is currently waiting on the Fed to lower interest rates in order for the housing market to recover. Even though we don’t urgently need it, it might, at least temporarily, be a significant boost to a sizable portion of the economy. Indeed, reduced rates will be effective; however, this will not happen until the Federal Reserve retires and provides them to us. “.
This year’s earnings were better than expected for the home improvement giant, but it did indicate that it anticipates lower sales in the latter part of the year due to persistently high interest rates and a challenging consumer landscape. “There is definitely a direct relationship between decreases in mortgage rates and the amount of activity that you at least see picking up in turnover,” Home Depot finance chief Richard McPhail stated during the earnings call. “.
In an interview with CNBC, McPhail restated this view, stating that homeowners have put off financing projects or moving into new homes because of the high interest rates, particularly in light of the central bank’s ongoing speculation about when rate cuts will occur.
The Fed kept interest rates unchanged at its meeting last month, and Chair Jerome Powell stated that a September rate cut was “on the table” as long as inflation data continued to show that the economy was slowing. Despite investors’ expectations that a rate cut is indeed imminent, the producer price index, which measures wholesale inflation, increased less than anticipated on Tuesday.
In Cramer’s opinion, more remodeling and restoration work supported by home equity loans would occur if mortgage rates dropped to nearly 6.5 percent for the 30-year fixed. Steep rate increases following the pandemic hindered these spending activities, which were hampered by supply chain problems during COVID, he said.
Additionally, according to Cramer, the “golden handcuff” dynamic—in which homeowners refuse to move because doing so would result in their low interest rates being lost—won’t last indefinitely. In his opinion, those homeowners will probably relocate when rates drop.
I think we can avoid a hard landing in the housing market because of [Home Depot], but only if the Federal Reserve removes the golden handcuffs it put in place when it lowered interest rates to extremely low levels a few years ago, Cramer added. “That’s probably what happens, and Home Depot obviously agrees because they wouldn’t have paid $18 billion for a professional pool and roof supplier—two areas that sorely require lower prices. “.
A request for comment from Home Depot was not immediately answered.
