Home Depot Is Actually Benefiting From Weak Housing Market

| About: Home Depot, (HD)

Home Depot (NYSE:HD) sells tools, services and materials used for home improvement. As the last few years were not very pleasant for the housing market, many analysts assumed that Home Depot would be affected negatively from the weakness of the housing market. Although the company has been posting strong growth and solid financial results in the last few years, many still believe that the company is negatively affected by the housing market. I don't agree with this, and I believe that the company will actually benefit from this market.

First, there are currently millions of homes that went through foreclosing and many more are to follow in the next few years. The only function many of these homes have been serving in the last few years was to depress the prices in many neighborhoods and be written as "assets" in balance sheets of banks in order for these banks to access cheap money from the Fed. That's fine, but many of these homes are abandoned, and most of them are far behind in their maintenance schedule. In other words, there are millions of foreclosure homes that will need to be either fixed or demolished in the near future. This should provide a lot of new business for Home Depot (and Lowe's (NYSE:LOW) too).

Second, there are still many homes in the market waiting to be sold. Many desperate home sellers have to either reduce their asking price or fix their home significantly in order to make a difference in this buyer's market. There are too many homes, and not enough buyers. This is where Home Depot comes in. Many home sellers used Home Depot products to improve their home values and were able to get better deal in their sales. I believe that this trend is likely to continue.

Third, there are also many home owners who want to move to a better home but aren't able to. Currently the bank loans are more difficult than ever to obtain, and it might make better sense for one to improve their existing home than to buy a new home in order to "move on up." Even those that want to move to a new home will have to sell their existing home first, and this may require some fixing up for the old home.

Fourth, rental properties provide another potential for growth for Home Depot. When someone owns a home and something breaks, he might delay fixing it, but what if the property is rental? Then most repairs can't be delayed as the renter will request the issue to be solved as soon as possible. In the last few years, many ex-home owners moved to rental properties as they couldn't afford keeping a house anymore, driving the demand for rental properties up.

In conclusion, I believe that the weak housing market is not actually hurting Home Depot but helping the company. This is evident in the company's strong growth in the last few years.

Disclosure: I am long HD.