Friday, November 14, 2008

Quote of the Day: Home Improvement

by Bill McBride on 11/14/2008 08:57:00 PM

"Armageddon is here."
a private comment from a Senior Buyer at a home improvement retailer, Nov 13, 2008
Note: this was private and I can't reveal the source or company (I have no position in the company)

From a previous post, here are a couple of graphs on two key components of Residential Investment (RI):

Residential Investment Single Family Structures Click on graph for larger image in new window.

As everyone knows, investment in single family structures has fallen off a cliff. This is the component of RI that gets all the media attention - although usually from stories about single family starts and new home sales (related to RI in single family structures).

Currently investment in single family structures is at 1.22% of GDP, significantly below the average of the last 50 years of 2.35% - and just above the record low in 1982 of 1.20%.

But what about home improvement?

Residential Investment Home Improvement The second graph shows home improvement investment as a percent of GDP.

Home improvement is at 1.21% of GDP, off the high of 1.3% in Q4 2005 - but still well above the average of the last 50 years of 1.07%. Maybe lenders are boosting home improvement spending fixing up all those damaged REOs!

This would seem to suggest there is significant downside risk to home improvement spending over the next couple of years.

Lowe's is scheduled to announce results on Monday and Home Depot on Tuesday.