US Mortgage Rates Hit One-Year High, Impacting Home Improvement Giants

Mortgage rates in the US have reached their highest point in one year, with the 30-year fixed-rate mortgage rate now at 6.71%. This increase is largely due to the global sell-off in Treasury bonds, which has driven up bond yields.

The rise in bond yields directly impacts mortgage rates, as they are closely correlated. This, combined with persistently high inflation and ongoing uncertainty about the Iran war, has contributed to rising bond yields.

Lowe's and Home Depot (HD) are two companies that could be affected by these changes. While they don't issue mortgages themselves, their business relies heavily on the housing market, as they sell materials, tools, and appliances used in home construction and improvement projects.

On its recent earnings call, Lowe's lowered its full-year outlook, citing macro pressure such as interest rates, inflation, and gas prices continuing to influence DIY demand. Home Depot, while reaffirming its full-year outlook, noted pressure in the housing market due to high interest rates and high housing costs.

Home Depot has managed to grow revenue by 5.7% year over year, despite these challenges, by focusing on contractors and smaller repair projects for price-conscious customers. Both companies have solid dividend yields, with Lowe's at nearly 2.4% and Home Depot at roughly 2.9%.

While marginally higher interest rates won't affect Home Depot too much, lower rates could lift both stocks, as they would make building materials more affordable and increase homebuilding and improvement projects.