Home sales stay hot

Market defying cooler forecast

Years of record-breaking home sales were supposed to give way this year to rising interest rates and a cooling marketplace. But the market has defied predictions and remains red hot both locally and nationally.

Sales of both new and existing homes are running contrary to analysts' darkening forecasts. The Commerce Department reported earlier this week that purchases of new single-family homes shot up 12.2 percent in March, the biggest percentage gain in more than a decade. A 2 percent decline had been predicted.

Also reported this week was that despite the National Association of Realtors' prediction that resales of existing homes would inch up only 0.1 percent in March, those sales actually increased a full 1 percent.

Hispanic Home Ownership Hits Record High

"The historic Hispanic homeownership statistics announced this week show President Bush's pro-growth policies are enabling more minority families to realize the American dream than ever before. Nearly 50 percent of Hispanic families own their own homes and 1.9 million more minorities have become homeowners since President Bush launched his initiative to increase minority homeownership to 5.5 million by 2010. Homeownership is just one part of President Bush's broad agenda to expand opportunity for all Americans, including strengthening Social Security for future generations with the creation of voluntary personal retirement accounts that will enable minority families to build wealth and create a nest-egg to pass onto loved ones."

Greenspan: Budget Trend May Be 'Unsustainable'

Federal Reserve Board Chairman Alan Greenspan says a combination of the current deficit and the unpredictable aspects of health care entitlement programs could put future federal budgets on an "unsustainable path."

He says entitlement-program spending must be restrained and suggests that Social Security's finances may not be the biggest problem the government faces.

U.S. Existing Home Sales Rise in March

Sales of existing U.S. homes rose 1.0 percent in March to the third-highest level on record as an increase in single-family sales offset a dip in sales of condominiums, a trade group said on Monday.

Sales of previously owned homes rose to a seasonally adjusted annual rate of 6.89 million units last month, the National Association of Realtors said. That figure includes both single-family homes and condominiums.

Single-family homes sales increased 1.2 percent in March to a 6.04 million unit rate from a 5.97 million unit rate in February. Condo sales fell 0.1 percent to a 845,000 unit rate from an 846,000 unit pace in February.

Analysts had expected overall sales to climb to a 6.80 million unit rate.

The national median home price jumped 11.4 percent to $195,000 from the same month a year ago, the NAR report showed. That price increase was the biggest since December 1980, when prices rose 11.5 percent, NAR said.

"The market is very strong," said NAR Chief Economist David Lereah. "The problem in this country is housing supply. It's still very lean."

In March, the supply of homes for sale at the current pace was 4 months' worth, down from 4.2 months' worth in February.

"We still have this awkward balance between demand and supply," Lereah said.

Home sales have been bolstered by low mortgage rates for more than a year, but some analysts said the housing sector has begun to show signs of easing. Last week, a U.S. Commerce Department report showed a 17.6 percent plunge in housing starts for March.

The national average long-term fixed mortgage rate was 5.93 percent in March, up from 5.63 percent the month before, according to Freddie Mac.

Fed's confidence about inflation keeps rates low

Rates on 30-year mortgages fell for a second straight week as bond investors expressed relief that the Federal Reserve has not grown overly concerned about inflation pressures.

In its weekly nationwide survey, mortgage giant Freddie Mac reported that rates on 30-year, fixed-rate mortgages averaged 5.91 percent last week, down from 5.93 percent a week earlier.

It was the second straight decline since rates at the end of March hit 6.04 percent, the highest they had been since last July.

Analysts attributed the decline to the release of minutes of the Fed's March 22 meeting.

Rates on 15-year, fixed-rate mortgages, a popular option for refinancing, fell to 5.46 percent, down from 5.48 percent last week.

Rates on one-year adjustable-rate mortgages bucked the downward trend and actually rose slightly to 4.30 percent, up from 4.23 percent.

Five-year hybrid adjustable rate mortgages averaged 5.31 percent, down from 5.33 percent. These hybrid mortgages have a fixed-rate for five years and then adjust each year after that.

The nationwide averages for mortgage rates do not include add-on fees known as points. All mortgage categories except one-year ARMS carried a 0.7 point fee this week. The one-year ARM carried a slightly lower 0.6 point fee.

U.S. March Housing Starts Fall 17.6% to 1.837 Million Rate

U.S. starts of new home construction declined a greater-than-expected 17.6 percent in March, the biggest drop since January 1991. Work began on 1.837 million homes at an annual rate, the slowest pace since November, compared with a 21-year high of 2.229 million in February, the Commerce Department said today in Washington. The median forecast in a Bloomberg News survey called for starts to drop to 2.09 million from a previously reported 2.195 million. Builders and their customers may have been deterred by rising interest rates, pushed up by inflation concerns among investors. Even so, the level of demand remains high enough for housing to prop up the economy this year, and borrowing costs have retreated, economists said. ``Housing starts should perform well in 2005, but they are likely to trend lower as the housing market cools from the vigorous pace seen in the prior few years,'' Michael Moran, chief economist at Daiwa Securities America Inc. in New York, said before the report. The pace of starts compares with last year's total of 1.96 million, which was the most since 1978. Builders broke ground on new housing at a 2.063 million annual rate in the first three months of the year. If continued, that pace would make 2005 the strongest year since 1972. Building permits, an indicator of future construction, fell 4 percent to 2.023 million units at an annual rate in March. Forecasts for housing starts ranged from 2 million to 2.238 million. Permits were forecast to fall to 2.09 million from a previously reported 2.107 million. Single-Family Houses The decrease in starts was led by a 14.4 percent drop for single-family houses to 1.539 million units at an annual rate. That compares with a record 1.798 million in February, higher than previously reported. Starts of multifamily homes decreased 31 percent to 298,000. Starts fell in all four regions, falling 29 percent in the Midwest to 309,000 at an annual rate; 18 percent in the South to 837,000; 12.7 percent to 503,000 in the West; and 3.6 percent in the Northeast to 188,000. Some of the decline in the Northeastern U.S. may have been weather related. Snowstorms and high winds struck New York state and the New England region in early March. Borrowing costs surged last month. The 30-year mortgage rate climbed to 6.1 percent at the end of last month from less than 5.5 percent in early February, according to figures from the Mortgage Bankers Association in Washington. The rise came amid concern that inflation was starting to pick up and would lead the Federal Reserve to speed up the pace of interest-rate increases. Backlogs Mortgage rates have since declined, amid reports suggesting that economic growth has cooled. The 30-year mortgage has averaged 5.74 percent so far this year, compared with 5.78 percent for all of 2004, when home sales were a record. ``Even if 30-year fixed mortgage rates reach 6.5 percent, as we're forecasting, that's still very attractive historically speaking,'' said Douglas Duncan, chief economist at the Mortgage Bankers Association. The average for the past decade is close to 7 percent. Backlogs also will sustain construction. Meritage Homes Corp., based in Scottsdale, Arizona, said April 7 the number of houses awaiting construction increased to 5,627 as of March from 3,279 a year earlier. M.D.C. Holdings Inc. had a record backlog of 7,893 homes, the Denver company reported April 5. The number of single-family houses authorized and not yet started was up 22 percent in March to 220,700 homes at an annual rate from a year earlier. The numbers aren't seasonally adjusted. Completions March housing completions fell 6.4 percent to 1.766 million units at an annual rate from 1.886 million. ``We have been limiting the number of lots released for sale in many of our communities'' to ease backlogs, John R. Landon, co- chairman and chief executive of Meritage, said in a statement. ``In several of our communities, demand is so strong that we have waiting lists and have seen significant price appreciation.'' Higher prices may limit sales this year after four years of record purchases, the National Association of Realtors forecast April 12. The Realtors' group said that existing-home sales will decline 2.4 percent to 6.62 million and new home sales will drop 5 percent to 1.14 million. The median price of a new home is expected to rise almost 6 percent this year to $230,100 after increasing 14 percent in 2004, according to a report March 14 from the Mortgage Bankers Association. ``We're getting a more rational housing environment,'' Ara Hovnanian, chief executive of Hovnanian Enterprises Inc., New Jersey's largest homebuilder, said before the report. ``The frothiness that we saw over much of the last 24 months is subsiding a little bit and that's a good thing because the increasing home values it produced were pricing some people out of the market.'' Fed Home construction accounted for about 6 percent of the $12 trillion U.S. economy in 2004, previous figures from the Commerce Department show. Federal Reserve Governor Susan Bies said the U.S. economy is expanding at a ``solid pace'' and inflation expectations remain under control, allowing the central bank to keep raising interest rates gradually. Consumers are also ``in good shape,'' she said, even as household debt grew about 10 percent a year from 1999 to 2004. Much of that debt is from larger mortgages, and rising home values also boosted consumers' net worth.

U.S. housing market index falls in April-NAHB

U.S. home builder sentiment, an important measure of the housing market, fell in April but was well within the strong range of the past 14 months, the National Association of Home Builders reported on Monday.

The NAHB said its housing market index registered a seasonally adjusted 67 in April, down from an upwardly revised reading of 70 in March.

"Favorable market conditions and the appeal of homeownership continue to fuel demand," David Seiders, NAHB's chief economist, said in a statement. "Many builders are reporting higher lot prices and some difficulty in finding available land -- both symptoms of strong demand for new homes."

A reading above 50 indicates more than half of builders surveyed view sales conditions as favorable rather than poor.

The NAHB's index of buyer traffic was at a seasonally adjusted 50 in April, versus an upwardly revised 52 the prior month. The current sales index was at 73, versus 76 in March.

The index of builder expectations for the next six months was at 76 in April versus 79 the previous month, NAHB said.

Seiders said the NAHB expects both home sales and home values to remain healthy in coming months.

While fixed mortgages rates have moved lower in recent weeks amid a slew of economic data showing a slowdown in the U.S. economy, the overall trend for mortgage rates has been higher in recent months.

"We are still at very favorable rates for housing ... but there tends to be a lag of about six to nine months between time interest rates start to rise and when a substantial impact on home sales and housing starts," said Michael Carliner, NAHB's vice president of economics,

"When it comes to rising interest rates, we tend not to see an immediate impact in terms of home sales, although it might affect builders' expectation's immediately," he said.

More data on the U.S. housing market will come on Tuesday, with the Commerce Department scheduled to release March housing starts.

The median forecast of 30 Wall Street analysts and investment banks surveyed by Reuters puts housing starts at 2.090 million annualized units, down from February's 2.195 million annualized units.

Bankruptcy law could spur filings: What to consider

A mad dash to bankruptcy court is expected over the next six months after the U.S. Congress this week passed legislation overhauling the nation's bankruptcy code.

But is that the right tack for consumers facing a mountain of debt? That depends a lot on your situation.

"If they're going to file, they're better off filing under this law than the next law," said Alan Kopit, legal editor at Lawyers.com and a bankruptcy attorney based in Cleveland.

"But you ought not to file even under this law without a thorough vetting of the pros and cons of whether that makes good financial sense for you."

That said, plenty of consumers will likely consider bankruptcy an option worth trying sooner rather than later.

The new law won't go into effect until 180 days, or about six months, after passage. That gives consumers a window to file for protection under existing, easier rules -- and many are likely to take advantage.

"Many people believe that, in the short run, bankruptcy filings will actually go up in that 180-day period," said Sam Gerdano, executive director of the American Bankruptcy Institute, a nonpartisan research group that includes bankers, professors and other experts.

"Those who are considering bankruptcy may file now so they can take advantage of current law, which is quite a bit more debtor-friendly," he said. See related story.

Consumer bankruptcy filings will likely rise 15 percent in the six months between the bill's passage and its effective date, followed by a slight decline in filings as consumers perceive the new rules as a too-steep hurdle, according to Global Insight, an economic forecasting firm.

The law's reforms will eventually "discourage some filings," said Jennifer Edwards, a principal in Global Insight's financial services practice.

Overall, consumer bankruptcies declined 3.8 percent in 2004, to 1.56 million from 1.63 million a year earlier, according to the American Bankruptcy Institute.

But household debt, combined with rising interest rates, will likely lead to an 11.3 percent increase in filings between now and 2007, according to Global Insight. Consumers are "increasingly vulnerable to unexpected expenses, disruption in their incomes or changes in interest rates," Edwards said.

Waiting too long to file?

Debt-laden consumers often consider bankruptcy a last resort -- and some wait too long before taking advantage of it.

"My experience has been that consumers wait too long as it is to consider bankruptcy when they really should be thinking about it," said Gerry Detweiler, author of the "Ultimate Credit Handbook" and operator of DebtConsolidationRx.com.

"Generally, consumers don't want to file. They want to do anything they can to avoid filing," she said. "In the meantime, they often make costly mistakes, such as raiding retirement funds that would have been protected in bankruptcy, to try to make a dent in their debt."

And retirement money in an IRA (as with pension funds) is shielded from creditors in consumer bankruptcies, according to a recent Supreme Court ruling. See full story.

Others risk losing their homes by maxing out home-equity credit lines. "In many cases, their homes would have been protected. It depends on what state you live in, but it could mean the difference between keeping or losing their home," Detweiler said.

But some attorneys say consumers too often rush into bankruptcy. "If the cause of your problem is the fact that you have a tremendous child-support obligation," Kopit said, "filing bankruptcy is not going to help you."

Child-support debt is not dischargeable under bankruptcy, and neither are student loans.

Rules of thumb

If you're on the edge financially, but have enough money each month to pay some debts, go to a consumer credit counselor, suggested John Ventura, a bankruptcy attorney based in Brownsville, Texas, and author of "The Bankruptcy Kit."

"If you have some money that you can pay on your debts, you should check out a [consumer credit counseling] organization," he said, "especially if you're current with your house and your car and you're only dealing with credit-card debt."

Still, these days, even that solution comes with its own set of problems. See full story.

And credit counseling, during which counselors negotiate a better payment plan with your creditors, only works if you have some money left after expenses.

"If you're one of those people that lives paycheck to paycheck and you have no disposable income, you basically are paying everything for housing, food, medicine, transportation, and you have nothing left over, then you may be a candidate for bankruptcy," Ventura said.

Another good candidate is someone about to lose a home or car. "If you don't have that car, you [may not] have a job," he said. If a single mother who's not collecting child support "came into my office and was threatened with the loss of the car, I would recommend bankruptcy, because that's a chance to save the car."

Whatever you do, don't delay working through the debt problem. "Don't rely on the hope that you'll have a job next month that will pay your bills," Detweiler said.

"Every month that goes by that's not with the income you need to make a dent in your debt, you will be falling further behind and it will be that much more difficult to dig out," she said.

Sometimes, even a seemingly small debt can be enough to push a consumer into bankruptcy.

"I once had to advise a woman who only owed about $2,500, but she owed it to a payday company and they wouldn't negotiate, wouldn't let her go through credit counseling, and the interest rate was so steep, she had to file. It was horrible," Detweiler said.

Vet the attorney

If you decide your ready to meet with an attorney, make sure you find one ready to serve your interests rather than increase a caseload.

Check with your local Bar Association to find out whether any complaints have been lodged against the lawyer. See the American Bar Association's guide to local Bar Associations.

Another useful site for finding a lawyer is the National Association of Consumer Bankruptcy Attorneys. Go to Nacba.org.

Find a lawyer who specializes in bankruptcy cases. "If you notice in their advertising that they practice about 12 different kinds of law," Ventura said, "I'd be very wary. You have to live and breathe it to do it right."

Ask for a free consultation. "In almost any city there are a certain number of attorneys who will give free consultations," Ventura said.

Ask why the lawyer thinks bankruptcy is the right route. "You need to always have in the back of your mind what's the motivation of the attorney," Ventura said.

"Are they just trying to get business and they're advising you to do this to scare you, or do they really feel concerned about you and can explain to you why it's in your best interests to file? A legitimate attorney will be happy to explain why they think it's the right decision."

Home sales won't cool until '06, analysts say

America's high-flying housing market isn't ready to settle down yet, it seems.

Buyers undaunted by rising interest rates are swarming over "for sale" properties across the country, pushing volume and prices higher than predicted so far this year, S. Lawrence Yun, senior economist for the National Association of Realtors, said Wednesday.

"We believe there's a lot of residual demand from people who made bids for homes but were rejected" because of higher offers, Yun said. "They aren't going to give up just because rates are higher. They have their minds made up. And now, the job-creating environment is creating a new pool of home buyers."

These two groups are a potent enough force to extend the nation's four-year record housing streak well into 2005, Yun said.

"Through the first half of this year, we see housing demand remaining at near-record levels," he said. "By the second half, with the mortgage rate about one percentage point higher, we may see a measurable drop in sales activity."

Yun commented after publication of the Washington group's April economic outlook, which projects for 2005:

• More sales: 6.62 million single-family home and condo resales and 1.14 million newly built houses, slightly below the 6.78 million and 1.20 million, respectively, last year.

• Higher prices: The median home price will rise 6.3%, to $196,900, for existing stock and 5.6%, to $232,800, for newly built offerings.

• Higher interest rates: In a strengthening economy, the 30-year, fixed-rate mortgage average will rise to 6.8%, significantly higher than the 6.3% predicted just two months ago.

"First quarter stronger than we thought? I agree completely. And it will continue through spring," said Frank Nothaft, chief economist for Freddie Mac of McLean, Va., the nation's second-largest mortgage company.

"Interest rates are up, but if anything, that might get people sitting on the fence to decide, 'If I'm going to buy a house, I should do it now.' "

Nothaft predicted that the 30-year mortgage rate will keep rising - but to no higher than 6.5% this year.

"It will still be a very good year for price appreciation - probably 6 percent to 7 percent. But most of that will be in the first half of the year," he said.

The slowdown expected to mark early 2005 probably won't show up until July or so, Yun and Nothaft said.

Or later. "The spring market has come out very strong, and we are expecting strength well into the year," said Diane Swonk, chief economist for Mesirow Financial, a Chicago investment services firm.

Swonk said she sees home values rising 6.5% this year - well above inflation and well below what constitutes the much-feared "price bubble."

But like her colleagues, Swonk sees the end to the heady good times in sight, probably by 2006. Next year, she predicted, deals will dwindle and home values will rise only 4%.

To sellers, that might seem puny. But to buyers, Yun noted, it could be a lifesaver.

"Home prices are up 9.3 percent over last year and, in some markets, 20 percent. That's not healthy - especially for those aspiring to become homeowners," he said.

Study Shows Homes Becoming More Affordable

Home sales have reached record levels for four consecutive years, and experts expect 2005 to continue the trend. A recent study shows that while home prices may be increasing, they are actually becoming more affordable and now may be the best time to make the big purchase.

Whether you are a first-time homebuyer or entering the marketplace as a repeat buyer, you need to know what you want to buy and if you can afford it. The National Association of Realtors' composite Housing Affordability Index was up slightly during the fourth quarter of 2004.

The median family income stood at $55,239. The index shows that a typical family had 131.8 percent of the income necessary to buy the median existing-home at $187,500.

The association said declining mortgage interest rates and rising family income helped improve affordability conditions. The index measures affordability factors for all homebuyers making a 20 percent down payment, with an index of 100 defined as the point where a median-income family has the exact amount of income needed to purchase a median-priced existing home.

How to deduct interest charges

Q I currently have a $26,000 mortgage. A few years ago, I also took out a $40,000 home-equity loan to pay for a few home improvements and consolidate bills. Now, I want to refinance and combine these two loans into a single mortgage. I also want to take out some equity to make a few more home improvements. How do I determine what interest payments will be deductible from my income taxes? Someone told me I might not be able to deduct all interest payments related to a refinancing.
- E.L., Dover, N.H.
A It's true that mortgage-interest deductions aren't unlimited, but I think you're going to be alright.
The key rules that apply:
Acquisition debt. You're generally allowed to deduct interest payments on your ``acquisition debt,'' which the Internal Revenue Service defines as a mortgage incurred to buy or substantially improve your home.
Your acquisition debt is the mortgage you obtained to buy the home, minus any principal payments you've made.
However, you can only deduct interest on up to $1 million of this debt ($500,000 for single taxpayers). That means that if you have an extremely expensive home, the IRS might not let you deduct all interest payments.
Home-equity debt. You can usually deduct all interest on all or part of a home-equity loan that's used to finance housing repairs or improvements.
If you're using the loan for debt consolidation or something else other than home improvements, you can deduct interest on up to $100,000 above your acquisition-debt limit.
Other rules. One additional limit may come into play for borrowers who refinance. The total tax deductible mortgage debt on a home can't exceed the home's current value.
How do these rules apply to you?
Well, your current acquisition-debt limit is $128,000. That's your existing mortgage ($28,000) plus a maximum of $100,000 on an equity loan.
Rolling your $26,000 primary mortgage and $40,000 home-equity loan into a single $66,000 mortgage would leave you well under that acquisition-debt ceiling.

In fact, you could borrow another $62,000 and still deduct all interest, as your total borrowings would still equal your $128,000 acquisition-debt cap.
This assumes, of course, that the loans don't exceed your home's value.
Although some lenders do approve loans in excess of a home's value, the IRS won't let you deduct interest on the excess unless you're using those funds to finance home improvements.

NAR: Pending Home Sales Index Rise

The Pending Home Sales Index, a new leading indicator for the housing market, shows home sales are firming, according to the National Association of Realtors (r).

The Pending Home Sales Index, (see note 1) based on data collected for February, stands at 123.2, which was 2.2 percent above January and 10.4 percent above February 2004. The index is based on pending sales of existing homes, including single-family and condo. A home sale is pending when the contract has been signed but the transaction has not closed. Pending sales typically close within one or two months of signing.

David Lereah, NAR's chief economist, said sales are looking strong for March and April. "Although home sales eased in February, housing activity appears to be firming with a modest uptrend in the months ahead," he said. Data for March existing-home sales will be released April 25.

An index of 100 is equal to the average level of contract activity during 2001, the first year to be analyzed. Coincidentally, 2001 was the first of four consecutive record years for existing-home sales. 2001 sales are fairly close to the higher level of home sales expected in the coming decade relative to the norms experienced in the mid-1990s. As such, an index of 100 coincides with a historically high level of home sales activity. Regionally, the PHSI in the Midwest rose 6.7 percent to 121.1 in February and was 9.4 percent above a year earlier. In the South, the index of 127.6 increased 3.5 percent from January and was 10.5 percent higher than February 2004. The index in the Northeast improved by 2.4 percent in February to 108.4 and was 3.0 percent above a year ago. In the West, the index fell 4.0 percent to 129.9 in February, but was 16.8 percent above February 2004.

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(note 1) The Pending Home Sales Index is based on a large national sample, representing about 20 percent of transactions for existing- home sales. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity from 2001 through 2004 closely parallels the level of closed existing- home sales in the following two months.

The regional data are not as robust as the national data and may be subject to meaningful revisions from time to time. NAR will expand the regional market coverage and eventually develop an index for state markets as the sample size grows.

The National Association of Realtors(r), "The Voice for Real Estate," is America's largest trade association, representing 1 million members involved in all aspects of the residential and commercial real estate industries.

Information about NAR is available at http://www.realtor.org. This and other news releases are posted in the Web site's "News Media" section in the NAR Media Center. Statistical data, charts and surveys also may be found in the NAR Media Center by clicking on Economic & Housing Statistics.

REALTOR(r) is a registered collective membership mark which may be used only by real estate professionals who are members of the NATIONAL ASSOCIATION OF REALTORS(r) and subscribe to its strict Code of Ethics.

The home improvement race

What are your plans this weekend? Chances are, if you’re like a majority of Americans, there is a trip to a big-box home improvement retailer in your future.

The cult of home improvement is alive and still growing rapidly, at least if the nation’s blistering home sales figures are any indication. And they are, according to industry watchers.

Two of the largest beneficiaries of this do-it-yourself craze — there’s even a whole DIY cable television network devoted to such things — are Atlanta-based Home Depot Inc. and Lowe’s Cos. of Mooresville, N.C.

Despite their clearly disparate sizes — Home Depot is the larger by far — industry analysts are unable to predict a clear victor in the race between them and don’t expect either company to end up as food for the other.

Home Depot’s 1,890 stores nationwide generated sales of $73.1 billion in 2004, compared to $36.5 billion for Lowe’s 1,087 stores. The companies combined have a lock on about one-third of the retail building-materials market. In Middle Tennessee, the two retailers have a combined presence of 23 stores in the greater Nashville area and several more farther a field.


Any given Saturday

As though drawn by religious fervor, thousands of homeowners regularly flock to the asphalt oceans surrounding Home Depot’s bright orange and Lowe’s cool blue repositories of raw materials, tools and finished goods used to adorn, alter and improve their domiciles.

Bob Hunnicutt, a silver-haired general contractor, loads a set of kitchen cabinets into a pickup at the Home Depot at 7665 Highway 70 South in Bellevue. It’s after 5 o’clock in the evening and the parking lot is still half-full.

“These [home improvement] stores are a tremendous help to us builders and contractors,” said Hunnicutt, 73, who owns Summit Construction Inc. “It’s a far cry from the old hardware stores.”

He was filling an order for a remodeling job for a couple who had seen something they liked while browsing in the big-box retailer’s store.

“I needed it first thing in the morning,” Hunnicutt said of his $800 order.

For both companies, the result of such surging demand has been a rise in sales without undue pressure to cut prices. As they have avoided price wars with each other, Thompson First Call’s analysts expect each company to have double-digit earnings growth for 2005. Each store will match a price from a competitor if asked, but comparable items are generally priced nearly identically at both chains.


No. 2 and growing

Lowe’s, which built 140 new stores in 2004, is expected to add 150 stores in fiscal 2005, and there are plans for another 160 stores in 2006.

That aggressive plan includes a Lowe’s store in Gallatin by the end of this year. In December, the company said it would begin construction of the new store on Highway 31 East and Browns Lane. The project is reportedly an $18.5 million investment by the company that will bring in 175 new jobs.

Last month, Lowe’s Cos., the No. 2 home improvement retailer, released figures showing it had outperformed its bigger rival for the fourth quarter. Net income increased to $508 million from $401 million. Sales for the company climbed 18 percent to $8.55 billion.

For the same period, Home Depot posted net income of $1.04 billion, up from $951 million the previous year. But despite a total that dwarfs its smaller rival, Home Depot’s sales gained just 11 percent to $16.8 billion.

Lowe’s revenue gain exceeded Home Depot’s because it added 56 new stores in markets, including Atlanta, and boosted sales of appliances. The company is sailing under new leadership, too. Chief Executive Robert Niblock took the helm in January.

“Lowe’s is really targeting growth in the metropolitan areas, particularly going up in areas where Home Depot is and they don’t yet have a presence,” said Janna Sampson, who manages $1.2 billion in assets, including shares of Lowe’s at Oakbrook Investment Management in Lisle, Ill.

Fourth-quarter earnings for Home Depot had their smallest gain in almost two years. The company said earnings rose 9.5 percent as appliance sales gained and the company increased its home installation services.

“Lowe’s has been posting higher comparable sales than Home Depot,” said Daniel Poole, of the Cleveland-based National City Corp., which manages $23 billion, including Home Depot and Lowe’s shares. “Existing home sales are remarkably strong, and we think that should bode for a very good year for home improvement in 2005.”

Existing home sales set a record last year, according to the National Association of Realtors. Home purchases rose 9.4 percent to a 1.226 million annual rate, and the median price increased 9.6 percent to $230,700, the U.S. Commerce Department reported in March.

U.S. spending on home improvements rose 5.7 percent in the past year, according to Harvard University’s Joint Center for Housing Studies.

Analysts say Home Depot, which has nearly saturated the United States, is now pursuing growth by tapping into foreign markets, including Canada and Mexico. In contrast, Lowe’s has years to go before it needs to look abroad for growth, since it only started entering larger U.S. markets in 2003.

Lowe’s CEO Niblock said recently that its plans are to open 65 percent of the new stores in large markets, where they have found those stores become top performers at a “very early age.”