And both of those are kind of working against it right now.

Yeah, so it was a relatively neutral quarter for Home Depot.

I think the theme is really stability.

They mentioned that during the call that demand is relatively in line with where it was a year ago.

They did have a slight miss on same store sales.

But I think what investors will latch on to and get a little bit of comfort with is the fact that they maintained their four-year same-store sales guide.

Now, when they initially came out with that, it was calling for growth of 0% to 2%.

This seems to be the new world here in real estate.

How much of that slowdown is being driven by higher mortgage rates versus just broader economic uncertainty overall?

that's a great question it's really a combination of the two- you know obviously affordability has been the major challenge in the market since twenty twenty two really when words rates skyrocketed- but it's not just rates it's you know the massive run up in home prices we've had since twenty nineteen.

Prices are up you know over fifty fifty percent or more depending on what market you're talking about.

But to your point, what we've heard increasingly from the builders is just this overall sense of uncertainty in the market, whether it's, you know, less certainty about the outlook for the direction of the economy.

You have more people concerned about maybe the outlook for employment, which is actually something that Lenore referenced on their call today.

And, you know, basically, while traffic has remained pretty stable, there's just not a lot of urgency in the market.

I think you have people out there maybe sitting on the fence who are saying to themselves, look, maybe mortgage rates are going to come down a little bit.

So does this earnings report from Lenar basically reinforce the fact that in this expensive housing market, people need deals and incentives to get in the door?

Drew, what is going to be the takeaway?

So Lowe's reported earlier this morning and overall it was a solid quarter.

They had a nice beat on same store sales really due to the strength of their professional customers and their e-commerce channel.

They had about a 50 basis point lift from recent storms.

You see the stock is down about 4% to 5%.

There's a couple of things going on there.

They guided the same store sales for 2026, being about flat to up 2%.

Is it low enough to get folks out of their homes and free up the existing home buyer market?

So that should be a positive for Home Depot, no?

Yeah, of course.

Lower mortgage rates, we do expect, will stimulate demand throughout the year.

It should also encourage more refinancing activity, which could support bigger ticket spending.

The issue is we just haven't seen it yet.

If you look at existing home sales in December, they were below a $4 million annualized rate.

That's about 25% below what a normalized market would look like.

How did the Home, you know, the Home Depots of the world, how they dealt with tariffs over the last year or so?

Drew talk to us about this potential lawsuit by the Trump administration how serious is the industry taking this.

Right so- according to the report there's actually no indication that any formal investigation has started.

um i i guess what's at play here is that it was hinted at that one of the industry trade groups the leading builders of america um builders within that including some of the large public builders that were highlighted like a dr horton and lenore were sharing information um that could be used to restrict home prices or inventory uh you know we've seen this this tactic from the administration in the past where they'll leak some information to the public as to put out a feeler for what the industry's response will be.

But to this point, it doesn't appear that there's actually any concrete evidence of wrongdoing.

It's interesting because the home builders have been in the crosshairs of the administration since the end of last year.

There's been rhetoric saying that if the builders don't put their lots into production and start building houses, that the GSCs could pull liquidity.

There's been dialogue suggesting that the public home builders shouldn't be buying back their stocks.

Interest rates, mortgage rates, what's the industry saying about mortgage rates and where they may go throughout the course of this year?

I first asked Drew if lower interest rates will help the home building sector.

So we actually think that 2026 is going to be another challenging year from a fundamental perspective for the builders.

If you think about the weakness that we've had in demand over the last several quarters, It leaves much of the group coming into the year with backlogs that are down anywhere from 10 to 40 percent.

And that's ultimately what translates into revenue over the next three to nine months.

In addition, I think you're going to see further pricing pressure as builders look to adjust prices to meet market demand.

So we're going to have further base price reductions.

And I think those are going to have to continue to lean on incentives.

So is there still a housing shortage in this country? And if so, how does it right itself?

What did they say to the street here with their latest earnings?

Yeah, this was a tough print for Lenore this quarter.

They came into the quarter with a pretty low bar.

Investor expectations had been coming down, but they still disappointed on both orders and margins.

And even more concerning was the guidance they issued for the first quarter, which was short on orders, closings, and margins.

So we think that consensus needs to come down pretty sharply here.

What this tells us is that Even though rates have fallen to kind of that low 6% range, I think we're about 6.3 now, it doesn't appear that they're significantly catalyzing demand, which was what a lot of people had been expecting.

How is the company specifically saying or explaining to investors how it's adapting to this new normal of persistent affordability concerns due to softening consumer confidence and a weakening job market, all these macro headwinds that it has no control over?

Drew, what's your 2026 outlook for the homebuilder? segment there the folks that are out there building the homes will lower interest rates will that help their business

so we actually think that 2026 is going to be another challenging year for from a fundamental perspective um for the builders if you think about the weakness that we've had in demand over the last several quarters it leaves much of the group coming into the year with backlogs that are down anywhere from 10 to 40 percent and that's ultimately what translates into revenue over the next call three to nine months- in addition I think you're gonna see further pricing pressure is as builders look to adjust prices to meet market demand so we're gonna have.

Further base pipe price reductions and I think those are gonna have to continue to lean on incentives.

Because it's something that home shoppers have become accustomed to it you know they're looking for deals when they're out there in the market so.

you know.

Slow top line growth and I think that incentive dynamic is also going to continue to pressure gross margins.

As we get into next year.

So is there still a housing shortage in this country? And if so, how does it right itself?

If so, are they trying to narrow the gap? Are they targeting that segment a little more?

Yeah, great question.

So Lowe's is about 30% professional contractors, 70% DIY.

Home Depot is about 50-50, maybe even a little bit higher on the pro front.

What's interesting, and to your point on investment, is the pro space, especially in building products distribution, has really become... a battleground among home improvement retailers.

You had Home Depot recently do acquisitions for SRS and GMS, and then you have Lowe's who recently acquired foundation building materials.

So it's certainly an area where they're making a concerted effort to grow.

How are these companies dealing with it? What have they been telling you guys?

If so, are they trying to narrow the gap? Are they targeting that segment a little more?

Yeah, great question.

So Lowe's is about 30% professional contractors, 70% DIY.

Home Depot is about 50-50, maybe even a little bit higher on the pro front.

What's interesting, and to your point on investment, the pro space especially in building products distribution has really become a battleground among home improvement retailers you had home depot recently do acquisitions for srs and gms and then you have lowe's who recently acquired foundation building materials so it's certainly an area where they're making a concerted effort to grow now lowe's has historically focused on the small and medium sized pro.

And what this acquisition does is it gives them exposure to larger pros who do more complex projects.

So they're able to be the supplier of choice across more building product categories and at a larger scale.

How are these companies dealing with it? What have they been telling you guys?

How about tariffs? What are the companies saying about tariffs at Lowe's and Home Depot, like tariffs on wood, hammers, I guess? I don't know.

Sure.

So not a whole lot of discussion this quarter.

I think, you know, given Home Depot and Lowe's scale, I think they're relatively well positioned to kind of navigate this environment with their suppliers.

That being said, they're certainly not entirely immune.

They kind of shifted their stance on their pricing strategy earlier in the year.

They said that they wouldn't be raising prices because But as the situation and the landscape continue to evolve, they said they would be raising prices selectively.

And they don't necessarily want to spend more than they can afford.

Drew, what's going on in the new housing market?

Yeah, some pretty eye-popping numbers today from the census.

Scarlett mentioned the fastest pace since early 2022.

I think you need to take these numbers with a grain of salt.

The report said that sales were up 20% from last month, plus or minus 22%.

So maybe they were down, maybe they were up a whole lot more.

Sounds like one of my estimates.

Could this be the beginning of, I don't want to say an upswing, but at least stabilization?

What did you hear from our folks there?

Yeah, it was a pretty tough quarter for Lennar.

Orders were actually pretty solid.

They were up 12% from last year.

But what management said is that they can see continued pressure in the housing market and that they had increased their use of sales incentives to drive traffic and demand.

Now, for a little bit of context, last quarter, and we'll wait to see how 3Q ultimately shapes out, but last quarter, incentives represented 13% of the average selling price of a home.

Wow.

So what do you make of the fact that the S15 home, the index that tracks home builders is up 13% year to date?

We first asked Drew for his take on Home Depot's earnings.

It was actually a pretty much in-line quarter for Home Depot today.

Comps up about one.

A little shy consensus, but if you back out some of the Forex impact, it was pretty much in line.

Now, of course, growth isn't as strong as you would like to see.

And a lot of that, as you mentioned, has to do with where rates are.

both rates on home equity loans and mortgage rates.

Drew, what does Home Depot say about tariff risk for them? How did they quantify it for the street?

Are we going to not be as catered to at the Lowe's and Home Depot's of the world?

So you're right.

Lowe's did just recently close on the acquisition of Artisan Design Group, who's a distributor of internal finishes, things like countertops, flooring and things along those lines.

So now Lowe's is really able to go to large scale contractors and builders and really provide an entire product suite on the interior of the business.

In terms of DIY, I mean, DIY is still 70% of the business for Lowe's.

That'll remain core to their strategy.

But what I think this speaks to is the relative weakness in that segment and the need for them to look for new avenues of growth you know out over the next several years when we think about how the market is likely to unfold and lowe's alluded to this today during the call we think a lot of the growth is going to come from big ticket spending that's been pent up over the last several years and this gives them an entrance into that market somewhere that where they didn't have that type of penetration before

What's driving that?

Drew, what does Home Depot say about tariff risk for them? How did they quantify for the street?

Yeah, good question.

Obviously on top of mind for a lot of investors.

So Home Depot has done well to diversify their sourcing over the last several years.

They get about 50% of their products from the U.S., so they are in pretty good shape from that regard.

We would estimate products coming from China are somewhere around 15% to 20%.

And there's a couple of ways that they're going to manage this.

What is going on in the mortgage market here? Drew, what do your companies say? What do they expect mortgage rates to do here? Because we do have a Fed that presumably is going to start cutting rates.

We first asked Drew for his take on why home improvement has been so resilient at Home Depot.

One of the reasons why home improvement and Home Depot have been so resilient is because a large portion of the industry has to do with that maintenance and repair-oriented work.

So I think that's where they're seeing a lot of the lift now.

It's homeowners who are taking care of the things that they need to just to maintain their home better.

This really isn't new.

It's been a couple of quarters now where we've heard from them that big ticket discretionary categories have been relatively weaker.

So think about things like kitchen remodels, bath remodels, flooring projects.

How about tariffs? Is that impacting the cost of their goods, like getting lumber from Canada, for example?

How about tariffs? Is that impacting the cost of their goods, like getting lumber from Canada, for example?

So we think Home Depot is pretty well positioned from a tariff perspective.

source about 50% of the products they sell from inside the U.S., and like a lot of other retailers over the last decade, they've done a great job in diversifying their supply chain.

They actually said that over the next 12 months, no single country outside of the U.S. is going to account for more than 10% of their product purchases.

The fact that they're diversifying their supply chain should help with costs.

At the same time, given their scale, the largest home improvement retailer, they'll have the ability to push back on some of their suppliers in terms of cost.

What they said is that they're looking to generally maintain their prices.

So, what does this mean for, say, Lowe's? Is this a good signal or is this more of a competitive signal?

What's the industry look like? What's the market look like these days?

Yeah, so we're about up about, you know, 2% give or take month over month and year over year.

We've kind of been bumping along this mid 600,000 annualized pace since mid 2023.

So, you know, demand isn't necessarily bad, but we're not seeing that lift that we had hoped coming into the year.

So overall, the start to spring has been very soft, as you would expect.

Affordability is still the biggest challenge out there in the market.

Home prices are up 50%.

so that's so interesting because we talk a lot about the sentiment data and how that has to translate into the hard data and we think and one thinks about that more in terms of like retail sales or gdp but your hypothesis from the read-through we get we're getting from the actual home builders is that that's actually translating into putting the pause button now

We first asked Drew for his take on earnings.

It was a good quarter for them.

Comp sales were positive for the first time in eight quarters.

So I think that's something a lot of people are latching onto and a positive indicator moving forward.

We came into the quarter thinking that they could do a little bit better than consensus on the comp line, really because of some of the positive data we've been seeing coming through in retail sales, along with the expectation that some of the recent hurricane activity would benefit them.

And that's something they called out.

They had about a $200 million benefit from hurricanes, which is about a 65 basis point lift to comp sales.

Do the same shareholders own HD? Do they own Lowe's as well? How do you differentiate?