As 2025 begins, the construction industry and companies like Home Depot face a landscape shaped by economic uncertainty, shifting consumer behaviors, and policy changes. With high interest rates, potential tariffs, and a recovery from post-COVID patterns, the sector’s future holds both promise and peril. Here’s a closer look at Home Depot’s recent earnings and what they suggest, the construction industry’s prospects based on current sentiment, the focus on residential and multifamily construction, multifamily starts since COVID, and the impacts of interest rates and tariffs.
Home Depot’s Earnings and What They Suggest
Home Depot, the world’s largest home improvement retailer, released its fiscal 2024 fourth-quarter and full-year results on February 25, 2025. During the earnings call, CEO Ted Decker highlighted Q4 revenue of $39.7 billion, beating estimates by $630 million, and earnings per share (EPS) of $3.13, surpassing expectations by $0.09. Decker noted, “We delivered solid fourth-quarter results, with total sales up 4.5% from the same period last year, driven by our SRS acquisition and strong Pro engagement, despite a challenging consumer environment.” However, for the full year, total sales remained flat at $152.7 billion, but comparable sales declined 3.2%, reflecting weaker demand amid high interest rates and economic caution. Net earnings for FY 2024 fell 7.2% to $11.5 billion from $12.4 billion in 2023.
CFO Richard McPhail’s outlook for 2025 further underscored caution, stating, “We expect sales to decline 1% to flat, with comparable sales dropping 3% to 4%, and adjusted EPS to decline 6% to 10% to $11.20–$11.80, down from $12.53 in 2024.” McPhail added, “The underlying fundamentals supporting home improvement demand remain strong, but macroeconomic headwinds, particularly high interest rates, are impacting consumer and Pro spending.” EVP and Chief Merchandising Officer Billy Bastek reinforced this, saying, “We’re seeing more discretionary spending deferred, but our investments in Pro customers and SRS are helping us maintain momentum.” Posts on X echo this sentiment, with some noting Home Depot’s “head-scratching” outlook despite a strong Q4, suggesting ongoing pressure on the housing market. This implies consumers and professionals (Pros) are holding off on major projects, but Home Depot’s focus on its SRS Distribution acquisition ($6.4 billion in sales) and Pro market growth, as Decker noted, “We’re seeing great opportunities with our Pro customers and expanding our footprint with SRS,” could position it for recovery if conditions improve.
Construction Industry Outlook Based on Current Economic Sentiment
Current economic sentiment, as reflected in reports and posts on X, is cautiously optimistic about construction in 2025, but challenges persist. Analysts like Dodge Construction Network and Oxford Economics predict an 8.6% increase in construction starts by the end of 2025, driven by potential interest rate stability and government spending on infrastructure and manufacturing. Residential construction is expected to rise 11.5%, while non-residential sectors like data centers and healthcare could see 5.9% growth. However, posts on X and some reports note a 18.6% drop in U.S. construction starts in Q4 2024, suggesting a bumpy recovery.
During the earnings call, Decker remarked, “We believe the construction industry will see some growth in 2025, particularly in residential, but we remain cautious about broader economic volatility.” EVP and Chief Customer Experience Officer Ann-Marie Campbell added, “We’re seeing incremental value for our Pro customers, but the macro environment, including high interest rates, is creating headwinds for construction activity.” The establishment narrative often emphasizes federal investments and rate stability as stabilizers, but critics argue that labor shortages, rising material costs, and potential policy shifts under the new administration could disrupt growth. With U.S. GDP growth projected at 2.5% and unemployment steady at 4.2% (as of February 2025), the economy shows resilience, but inflation (currently at 2.5–3%) and consumer caution could slow momentum. Construction firms are bracing for volatility, with some seeing 2025 as a “welcome rebound” if rates stabilize, while others warn of tariffs and regulatory uncertainty.
Residential and Multifamily Construction
Residential construction is a key driver for 2025, with single-family homes leading the charge. Dodge forecasts a 11.5% increase in residential starts, driven by potential interest rate stability lowering mortgage rates from 6.5–7% to more manageable levels. This could spur demand among first-time buyers and investors, addressing a national housing shortage of 3.7 million units (as of Q3 2024). However, the National Association of Home Builders (NAHB) predicts a modest 1.4% rise in single-family construction, reflecting tighter lending and lingering affordability issues.
Multifamily construction, however, faces a tougher road. Dodge and NAHB project a 5.8% decline in multifamily starts for 2025, following a 27.5% drop in 2024, as vacancy rates rise and high interest rates deter developers. Posts on X and reports highlight over 940,000 apartments under construction—near a 50-year high—but completions are slowing due to financing constraints and market saturation. The post-COVID shift toward single-family homes in suburban areas, driven by consumer preference for space, has eclipsed multifamily growth, though low-rise multifamily in suburban regions could see recovery if rates stabilize. Decker noted in the call, “We’re seeing more activity in single-family residential with our Pro customers, but multifamily projects are still facing headwinds due to financing challenges.” Campbell added, “Our Pro customers are telling us multifamily projects are stalling, but single-family demand is picking up, especially in suburban markets.”
Multifamily Starts Since COVID Across the Nation
Since the COVID-19 pandemic began in 2020, multifamily construction starts have followed a rollercoaster path. In 2020, low mortgage rates (averaging 3.3%) and pent-up demand sparked a boom, with starts reaching record levels as urban dwellers moved to suburban rentals. By 2021, multifamily starts peaked, driven by post-pandemic recovery and federal stimulus, but growth slowed in 2022 due to rising rates (up to 7.79% by late 2023) and economic uncertainty. Economist Jay Parsons, VP at RealPage, notes in industry reports that multifamily starts declined 8.4% in 2023 and 27.5% in 2024, reflecting higher borrowing costs, labor shortages, and oversupply concerns.
As of Q1 2024, the U.S. Census reported 358,000 housing permits issued, up 4.4% from 2023, but multifamily permits have lagged, with a 12.6% drop in starts from October 2023 to 2024. Parsons highlights, “The post-COVID shift to single-family and low-density units has structurally changed demand, leaving multifamily developers grappling with high vacancy rates in urban cores.” By 2025, analysts expect stabilization at around 374,000 starts, but the sector remains vulnerable to rate volatility and tariff-induced cost hikes. In the earnings call, McPhail acknowledged, “We’ve seen our Pro customers report slower multifamily activity, but we’re optimistic about steady growth in other sectors.”
Interest Rate Impact
Interest rates are a critical factor for construction, Home Depot, and real estate in 2025. After peaking at 5.5% in 2024, the Federal Reserve cut rates by 75 basis points, with another 25-basis-point cut expected in December 2024. Current forecasts suggest rates will remain elevated, potentially stabilizing around 4–4.5% through mid-2025, depending on inflation trends (currently at 2.5–3%). This could lower mortgage and construction loan costs modestly, boosting residential starts, particularly single-family homes, by improving affordability and unlocking pent-up demand. However, the “rate lock-in” effect—where homeowners with sub-4% mortgages avoid selling—continues to constrain inventory, potentially slowing sales despite rate stability.
For multifamily, high rates have tightened financing, causing a 27.5% drop in starts in 2024. Stabilization at 4–4.5% could revive developer confidence, but banks may remain cautious, fearing inflation resurgence. McPhail warned in the earnings call, “High interest rates are a significant headwind, deferring both DIY and Pro projects, with our comparable sales down 3.2% in 2024 due to these pressures.” Decker added, “We don’t assume any meaningful change in the rate environment to drive improvement in 2025, but we’re positioned for growth if rates stabilize.” If rates hold steady or rise, Home Depot’s sales could face continued pressure, but any modest decline could spur gradual recovery in construction activity.
Tariffs
Tariffs under the Trump administration pose a potential challenge for construction and Home Depot, but the company’s historical resilience suggests limited long-term impact. Proposed tariffs on steel, aluminum, and imports from China could raise material costs, particularly for appliances (32% imported) and softwood lumber (30% imported), per NAHB. Posts on X and reports suggest builders and retailers are “concerned about costs,” but Decker emphasized in the call, “We’ve navigated tariffs before, like in 2018, and we’re already diversifying our supply chain, reducing reliance on China by 15% over the past five years and expanding sourcing in Mexico and North America.”
During the 2018–2019 tariff period, Home Depot managed cost increases through strategic sourcing, bulk purchasing, and passing minimal price hikes to customers, maintaining gross margins above 33%. McPhail added, “Our scale and supply chain investments, including $2.5 billion in capital expenditures in 2024, position us to mitigate tariff impacts, and we don’t anticipate significant disruptions to our business model in 2025.” Analyst Michael Lasser, during the Q&A, asked, “What’s your view on tariffs and their impact on costs?” Decker responded, “Historically, we’ve seen tariffs as a short-term challenge, but our supply chain agility—shifting 15% of imports out of China—means we’re well-positioned to absorb any cost pressure without major margin erosion.” The establishment narrative often downplays tariffs’ impact, focusing on domestic sourcing, but critics argue they could reignite inflation, countering rate stability and disrupting supply chains, particularly for lumber and metals critical to construction. However, Home Depot’s historical ability to absorb such shocks—evidenced by stable margins during past tariff cycles, as Bastek noted, “We’ve managed tariffs effectively through pricing strategies and sourcing diversification”—suggests it can weather this storm with minimal long-term effect on earnings.
Conclusion
In 2025, Home Depot’s cautious earnings outlook and the construction industry’s mixed prospects reflect a delicate balance of opportunity and risk. Residential construction, especially single-family, could thrive with stable or modestly declining rates, boosting Home Depot’s sales, as Decker noted, “We’re optimistic about single-family growth driving Pro engagement.” However, multifamily faces headwinds from oversupply and financing constraints, per Parsons’ analysis. Since COVID, multifamily starts have plummeted, while single-family demand surged, driven by consumer shifts and rates. Interest rates, if stabilized, could unlock growth, but tariffs threaten to raise costs, though Home Depot’s historical resilience, as McPhail, Decker, and Bastek emphasized, should mitigate major impacts. As the industry navigates these dynamics, stakeholders must watch economic policies, rate movements, and supply chain shifts closely to adapt effectively.
