The Home Depot, Inc. (HD), Lowe’s Companies, Inc. (LOW): Why You Shouldn’t Give Up on Housing

This is a pretty good indication that the housing recovery has legs, because it implies that there isn’t an oversupply of properties on the market. The figures are nowhere near the kind of vacancy rates reached from 2006 through 2011.

The third reason is that the economy doesn’t just turn on a dime. The US economy is growing (albeit moderately), and investment in housing isn’t just a function of interest rates. In fact, rates tend to rise when the economy is getting better, and banks tend to start loosening credit standards when the economy improves. Moreover, job gains will add new potential home buyers to the marketplace; all of which are good for the housing market.

The final reason is that the Federal Reserve is watching! For all the talk of tapering quantitative easing, the truth is that Ben Bernanke always outlines that tapering is contingent upon the economy improving. Since housing is a key part of the economy, it is reasonable to expect that the Federal Reserve will do what it takes to keep mortgage rates low.

The bottom line

The market is right to fear some affect from interest rate rises, but the housing market has too much momentum behind it to fall away anytime soon. Investors in The Home Depot, Inc. (NYSE:HD) and Lowe’s Companies, Inc. (NYSE:LOW) should look forward to ongoing improvements in end- market demand.

While Home-Depot is more of a pure-play on housing, Lowe’s Companies, Inc. (NYSE:LOW) also has upside from its internal restructuring. The latter is trying to reset its sales lines with a view to increasing inventory turnover. Lowe’s is executing well on its plans, but its usually easier to do such things when end-markets remain favorable. In other words, both companies are still likely to see their prospects dictated by the housing market.

With the market seemingly determined (in the short term) to price in some future weakness in The Home Depot, Inc. (NYSE:HD), it looks like a good opportunity to pick up some stock.

The article Why You Shouldn’t Give Up on Housing originally appeared on Fool.com.

Lee Samaha has a position in Home Depot. The Motley Fool recommends Home Depot, Lowe’s, and Wells Fargo. The Motley Fool owns shares of Wells Fargo. 

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