Growth In Home Improvement Sector Should Last At Least Another Three Years

The latest housing numbers indicate that the home improvement industry is several years away from the peak of its current cycle. In fact, UBS analyst Michael Lasser sees at least another three years of 4.0–5.0 percent growth in the sector.

According to Lasser, home improvement companies Lowe’s Companies, Inc. LOW and Home Depot Inc HD will likely enjoy 15–20 percent earnings growth as the cycle continues to play out.

“Our view is based on a detailed build-up o occupied housing units, home improvement spend per household, and market share dynamics,” Lasser explained.

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UBS estimates that every 1 million additional occupied housing units contributes $3 billion to the home improvement market. The firm is projecting 1.19 million new households annually over the next three years. In addition, Lasser expects spending per household to continue to rise from an average of $2,837 in 2015 to potentially above the prior 2006 peak of $3,049.

The median age of a house in 2006 was only about 31, but it has since climbed to around 37. Older houses typically require more home improvement spending. UBS projects that annual spending per household will reach a new peak of $3,146 by 2018.

In the past year, Home Depot’s shares have surged 22.8 percent, while Lowe’s shares are up 6.8 percent.

Disclosure: The author holds no position in the stocks mentioned.