Housing cycle still on the upward swing

Home Depot's CEO says home improvement sales are directly tied to the value of homes.

By Jim Cramer Dec 12, 2013 12:10PM

Home Depot store in Oklahoma City © Sue Ogrocki/APMaybe it's a multiyear move tied not to the Fed but to the need for more homes.

 

That, in essence, is what Home Depot (HD) CEO Frank Blake said Wednesday night about why he doesn't think we are at the peak or even near it when it comes to both his company and housing-related entities in general.

 

Home Depot has put more thought into what drives sales than just about any company I have ever seen. Blake and Carol Tome, the amazingly good CFO, have done regression analyses that correlate every aspect of their revenues to gross domestic product, to percentage of growth domestic product spent on homes and to the level of indebtedness versus the value of a house. The most important lead indicator? The value of a home. If it goes up, then you go to Home Depot to invest in that home.

 

In this analysis, a home is either a failing or a succeeding business, and if it is succeeding, you want to add to it, just as any rational businessperson would do. The Street on MSN Money

 

When I talked with Blake, I was prepared to go over the usual grounds about what happens when the Fed tapers, blah blah blah. But Blake said the determinant isn't interest rates, it's the innate demographic pent-up demand from household creation. We are simply not producing anywhere near the level of homes we need to be able to replace what we are losing and sate the demand for people who are living with their parents.

 

That, above all, is the reason he is confident that it's still early in the cycle.

 

I immediately asked that if that's the case, why doesn't he add stores in the United States, which is a growth prop that so many analysts secretly wish HD would start doing (it added only one this year,).

 

Nope, Blake said, it's what's sold in the aisles. A combination of innovative products -- like the Cree bulb that last 22 years that he says "you have to include in your will" -- a better supply chain that allows very quick delivery, including a $300 million decision to offer same-day delivery in some cities, and better use of the aisle space will get Home Depot exactly where shareholders want it to be.

 

I know we are in some sort of a funk right now, but I also believe that while we aren't, perhaps, in as early an inning as Blake thinks we are in this cycle, I do think this top-of-the-ninth feel is just way off base. Jim Cramer on MSN Money

 

If it comes in, you buy it.

 

Action Alerts PLUS, which Cramer co-manages as a charitable trust, has no positions in the stocks mentioned.

 

Jim Cramer's Action Alerts Plus: Check out this charitable trust portfolio and uncover the stocks Cramer thinks could be winners.

 

More from TheStreet.com

91Comments
Dec 12, 2013 12:34PM
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Gotta disagree on this one Jim. Globalization means lower wages and lifestyles.  The ACA alone will pressure wages on health care industries. If workers lose buying power home prices have no where to go but down. If debt and QE were curtailed interest rates would be much higher and the decline would be even more pronounced.
Dec 12, 2013 12:46PM
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This story is almost as valuable as the one about Buffalo Wild Wings switching to Pepsi.
Dec 12, 2013 12:35PM
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"If the value of a home goes up, the homeowner will want to invest more money into it."  Not sure about this premise.  I see plenty of people pouring money into homes just for the update - the kitchen or bathroom is 30yrs old and worn out, the flooring or fixtures are old, etc...  They aren't basing their decisions on the value of the home, they just want newer stuff. 

HD sells plenty of stuff that really doesn't add value to your home - lawn mowers, appliances, Christmas decorations, garden hoses, power tools, etc...  are all great things to have and you might even need them, but when you purchase them, you really aren't "investing" in your home.
Dec 12, 2013 1:17PM
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People are living with their parents because either they don't have a job or are working in a job where they don't  make enough money to rent their own place, let alone buy a house.

 

People go to Home Depot for DIY repairs and improvements because they can't afford to trade up, which was the norm before the current recession.  Banks aren't lending to your typical HD customer

 

Housing data, like stock market data is being manipulated.  Let's see how things are this spring, then maybe we can make a judgement.

Dec 12, 2013 12:42PM
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Next Time Up makes a good point - that is, the possibility of lower incomes and spending power in the health care industry (along with so many other industries).  You just don't think of doctors as taking pay cuts.

 

The trickle down of the ACA is going to take many years to reveal itself.  I don't have good feelings about it.

 

 

Dec 12, 2013 2:41PM
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Owning a used home is a young man's game.  I'm  tired of fixing things.

 

 

Dec 12, 2013 2:51PM
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Personally I like Lowe's more than HD and how do you know Carol Tome is incredibly good Bobo?

At least he is brown nosing a chick today.
Dec 12, 2013 2:35PM
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Tapper is going to kill the market. Tapper is the bane of the Dow. Tapper will take all your money. Tapper is the end of prosperity. I say sell all your valuable stocks all because of Tapper.

( JMHO and has nothing to do with upsetting Rome of course.)  ..... Oh and Amazon is Great!
Dec 12, 2013 12:18PM
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Traders who are manipulating tapering are scum ... News Media promoting tapering in headlines are low life ... both have been ripping off honest investors for years  ... they are manipulating for 'dirty' profits and sensationalism ... This is so morally wrong and repulsive.
Dec 12, 2013 3:22PM
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Call it right now CGT and Rome.......... is this a sucker rally?
Dec 12, 2013 2:24PM
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Sure the Chinese are buying up Detroit. They are also building huge empty apartment complexes and malls in China. They like empty buildings......... even falling down rat infested ones apparently.
Dec 12, 2013 1:43PM
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Housing is in a bubble... crazy price gains while no one gets pay hikes. In fact pay keeps decreasing across the board. Its time for the bubble to burst.
Dec 12, 2013 2:21PM
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Akimoto....

I've put the snow plow on my 4x4....


That box You and Fatty live in,....Better be reinforced.. 

Dec 12, 2013 2:06PM
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CL; Every time I hit you with facts you vanish.Don`t act like you`re objective.You`re the female

Rush Limbough.Whatever Obama says you automatically go the other way.Rush makes millions

because right wing saps listen to his lies.

Dec 12, 2013 1:44PM
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Housing gonna crash in 2014 .. thats an accurate prediction.
Dec 12, 2013 2:45PM
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On the other hand, if you knew where Boeing was going to build the 777X, you'd buy everything in that area that you could get your hands on.

 

 

Dec 12, 2013 2:05PM
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Yep......... the Chinese are buying up Detroit.

Chinese man complaining to Obama.... "Show me bacon"

Dec 12, 2013 2:04PM
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50% of the American families make 50,000 or less so they are not going be able to buy some of these bubble priced homes. I saw many homes picked up by the investor in Denver for cash. They will stop buying since the price is going to high. There are many foreign investors over here buying in California. 
Dec 15, 2013 11:03PM
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High on drugs Rush Limpballs and his mentally challenged Repukelican followers are calling the Pope a Marxist, based on the Popes views of trickle-down voodoo economics.

And let's not forget about **** Cheney sticking to his guns by still calling Nelson Mandela a terrorist. Cheney was last heard ranting and raving: "LONG LIVE APARTHEID",  "KILL ALL THEM DARKIES" and "KILL ALL THOSE GAYS AND LESBIANS..... ummm..... except for my daughter".

Forgive all them Repukelican lunatics Lord, for they all suffer from "Affuenza".

DIE REPUKELICANS, DIE!

Dec 12, 2013 2:21PM
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Barry, Just keep listening to Fox.They love to say SS and Va benefits are welfare.The Repubs

wonder why they can`t win the WH.Just keep talking that crap and they`ll never win the WH.

  I have a power lunch to attend.Time for the Repubs to namecall me now.Look where that`s

gotten them.

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