Maybe you need to be a gardener, like I am, to know how big these days are for Home Depot (HD) and Lowe's (LOW). We are at the peak of planting season and these two chains are the go-to stores for everything garden -- from seeds and fencing to flats and fertilizers -- that is, unless you are organic and natural, like my garden is. No wonder Home Depot brings on 70,000 new associates just for this period, which is the equivalent of the Christmas holiday season for sales. They even call the second weekend in April their "Spring Black Friday" to note the traditional kickoff of gardening season.
It's also the season for refurbishing your home after a long winter. You paint, you fix the roof, you get the shingles, you upgrade the windows -- all the things that you don't do during the winter. It's worth the investment, given the sharp appreciation in home values, according to the Case-Schiller house index, which we just learned yesterday showed a 5% appreciation in the month of March.
Housing, which we know punches well above its weight in the U.S. economy, is beginning to get back to where it was before the Great Recession with the possibility of more than 1 million homes being built this year, double what we saw just a few years ago. Zillow's (Z) chief economist, Stan Humphries, was quoted in The Wall Street Journal today saying that he believes we need 1.5 million new homes to keep up with the growing population.
These trends are probably why the so-called disappointing Lowe's earnings number barely dinged the company's stock and now both Home Depot and Lowe's are on the upswing. Which brings me to the notion of the coming interest rate hike. We are beginning to hear chatter that if the Fed were to begin raising rates, there would be a surge of buyers who don't want to miss the bottom in mortgage rates.
I could not disagree more.
This nascent housing boom could be threatened instantly by any rate hike. In fact, it is the industry I am most worried about. And, yes, while we may hear stories of rapid home price appreciation, I would contend that can be cured by building more homes, not raising interest rates.
More important, I want to stress the term "nascent." Toll Brothers (TOL) this very morning said that right now sales are "choppy," even as they are strong in some areas, notably, California, Texas and New York City. You don't raise rates when things are "choppy." You raise rates when things are humming and you are sure things are study enough that you don't damage the trend or destroy it. We may just now be getting to 1 million housing starts. Why can't the Fed wait until things are strong enough to sustain more than that, so we have more demand for everything from paint to wood to bedding to flooring, as well as kitchen, bath, appliances and tools, all of which are doing fine but have room to run.
There is a tremendous misconception by many Fed-heads that housing is hot enough and business is good enough in this country for the central bank to act. There's a foreboding inevitability to all their discussions.
Here's my advice to the Fed: Get more comfortable with being on hold until the dollar is truly turning down and housing sales are so strong that they need to be hemmed in by rates.
But we simply aren't there yet. The gardens look great, but the robust home sales could easily prove to be ephemeral if the Fed simple determines that June or September must produce a rate hike or else.
Sure, I don't want the Fed to be late, but there's harm in being early, and we are still early when it comes to this key segment of the economy. Fed members who constantly blather about when and how much should stop the clock, stay close to the data, take time to smell the newly planted roses and, for heaven's sake, shut up!