Hammer and saw fixing the economy Home-improvement industry thrives serving busy do-it-yourselfers

August 23, 2002|By Dan Thanh Dang | Dan Thanh Dang,SUN STAFF

Leave it to the do-it-yourself crowd to single-handedly try to repair the nation's weakened economy.

Despite flagging consumer confidence and falling stock prices, homeowners armed with a never-ending to-do list are boosting sales and profits for home-improvement businesses this year as more people are remodeling their kitchens or building decks instead of investing in the stock market or flying to Europe.

Helped by record-low interest rates and a post-Sept. 11 nesting instinct, new and existing home sales are near record levels and mortgage refinancing is on the rise, experts say - all of which are fueling a robust home-renovation frenzy. Evidence of that came this week when Home Depot Inc. and Lowe's Cos. Inc. reported strong sales and earnings that exceeded Wall Street expectations.

"As more people become homeowners and more homeowners refinance their mortgages, many [more] people are looking at their homes as their largest assets," said Marie Driscoll, an Argus Research analyst who covers the retail industry. "Post-Sept. 11, there's less travel. The baby boom generation is spending less money on apparel. And they're using home improvement as a form of self-expression. Your closets are filled, so let's build another closet.

"I think the long-term trend is for people to care more about their homes. There's always going to be another renovation project. That's why the entire sector, from Williams-Sonoma to Home Depot, are all enjoying an increased awareness in people enjoying the home."

Investing in tomorrow

You can count Bernadette Williams as one of those people. She figures the money she puts into her house now is security for the future.

An East Baltimore resident who works as a housekeeper for a local church, Williams said she's probably spent at least $1,000 at the Home Depot on Eastern Avenue in the past several months.

She and her school teacher husband remodeled their bathroom recently and are planning to re-do the floors and buy stones for the backyard garden.

On Wednesday, she was buying a toilet seat for the church and paper bags for recycling.

"I come here all the time. If we're going to retire someday, we're going to sell our house and move to Ocean City, hopefully," Williams said.

"I don't have a lot of money for renovations, but I don't over-do it. The house is the single biggest investment you'll ever make, especially right now since the stock market isn't doing so well."

The can-do, fix-it attitude has drawn a lot of people to residential real estate investments after watching the value of their mutual funds and 401(k) portfolios sink with the market over the past year, analysts said.

Nationwide, the number of existing single-family, apartment condominium and co-operative home sales totaled 6.3 million units in the second quarter of this year, up 4.4 percent from the 6.1 million pace of a year earlier, according to the National Association of Realtors.

This was the second-highest annual rate since NAR started tracking total state resale series in 1981.

The industry benefits

And with older housing stock comes a need for renovations, a direct benefit for the home improvement industry.

On Tuesday, Home Depot's executives said profit topped $1 billion in the second quarter, a 28 percent increase from the year before. A day earlier, rival Lowe's reported a 42 percent increase in net income and raised its earnings outlook for the year.

In the same vein, Black & Decker Corp. posted 59 percent higher net income for its second quarter amid gains in all three of its business segments - power tools and accessories, hardware and home improvement and fastening assembly systems.

Other businesses that supply building materials, such as lumber yards, have also performed relatively well this year, analysts said.

"Despite the poor economy, despite the erratic stock market, this has been the one bright spot because of the strong real estate market," said Bentley Offutt of Offutt Securities, a Baltimore-based investment research firm. "For these do-it-yourself chains, if someone's buying a home, you want to renovate it, paint it, put in a new kitchen counter and put in a back porch."

For Brian Sandlin, buying a $28,000, two-bedroom house in Armistead Gardens a year ago has meant making several trips to the Home Depot on Eastern Avenue. Spending between $3,000 and $4,000, Sandlin has replaced the kitchen floor, bathroom floors and windows in his home.

While some analysts believe that the boom will continue, others say a slowdown is inevitable.

"It continues to defy expectations, but it will probably moderate and slow down at some point," said David P. Campbell, vice president of equity research at Davenport & Co. "It's going to be harder for these companies to maintain the pace."

Lawrence Horan at Parker/Hunter Inc. disagrees.

"I don't see a cool-down," Horan said. "It would take a fairly large rise in rates for that. People buy a house with the idea that they're going to modify the bath or re-do the kitchen. Those are big projects. Big projects take a long period of time. It's extensive work. So if you buy a house this year, you'll still be working on it next year, probably."

Cheaper than renting

John Sigmon can attest to that.

He bought a house in Armistead Gardens 18 months ago. After putting in new kitchen cabinets, new doors and new windows, he was back at Home Depot yesterday to buy a shower door. And he's still nowhere near finished.

"I've probably spent about eight grand in the last year," Sigmon said. "I bought a house because I couldn't afford to rent anymore. I was paying $600 for an apartment in Patterson Park. Now I'm paying $300 a month. When you're doing something to the house, you're doing it for yourself. I wouldn't be doing this if it wasn't a sound investment."

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