Cramer explains what Home Depot’s quarter says about the housing market

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. “While that’s not something we desperately need, at least for the moment, it could be a major positive catalyst for a huge part of the economy. Yes, lower rates will work, but, alas, not until the Fed gets off the bench and gives them to us.”

The home improvement giant beat earnings expectations on Tuesday but signaled that it expects weaker sales later this year as higher interest rates and a tricky consumer landscape persist. On the earnings call, Home Depot CFO Richard McPhail said, “There is certainly a direct relationship between decreases in mortgage rates and the amount of activity that you at least see picking up in turnover.” McPhail reiterated this sentiment in an interview with CNBC, saying homeowners have postponed moving into new houses or financing projects due to high rates, especially as the Fed teases rate cuts.

At its meeting last month, the Fed held rates steady and Chair Jerome Powell said a September cut was “on the table” as long as inflation data continues to indicate that the economy is cooling. 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. These areas were hurt by supply chain issues during Covid and didn’t quite find their footing after the pandemic because of steep rate hikes, he said. 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. To him, those homeowners are likely to move when rates decline.

“[Home Depot] gave me hope that we can avoid a hard landing for housing, but only if the Fed unlocks those golden handcuffs that it created by taking rates to super low levels a few years ago,” Cramer said. “I bet that’s what happens, and clearly Home Depot agrees or else they wouldn’t have shelled out $18 billion for a professional roof and pool supplier, two areas that desperately need lower rates.”

Home Depot did not immediately respond to a request for comment.