Home Depot Sees Limited Growth Without Housing Market Rebound

2025 will be a year to forget for home improvement retail giant Home Depot (NYSE: HD). Ahead of the company's investor and analyst conference, Home Depot reiterated its outlook for the full year. Comparable sales growth is expected to be slightly positive, with total sales increasing by 3% due to the opening of 12 new stores and the acquisition of building products distributor GMS.

While sales are expected to grow this year, the bottom line is looking bleak. Home Depot expects its adjusted earnings per share to decline by about 5%. Consumer spending uncertainty and an unfavorable housing market are contributing to the company's profit woes.

For 2026, Home Depot expects some improvement, but the company needs a recovery in the housing market for its results to really shine.

Image source: Home Depot.

Another sluggish year for Home Depot is likely ahead

Home Depot's preliminary guidance for 2026 assumes that the overall home improvement market will remain roughly flat, with industrywide sales growth projected to be between 1% down and 1% up compared to 2025. The home improvement industry is being weighed down by a double whammy of slow housing sales and increasing pressure on household budgets, partly due to the impact of tariffs.

Redfin recently published its predictions for the housing market over the next few years, and it's mostly bad news for Home Depot. Redfin foresees a multi-year reset, with affordability gradually improving as home prices rise more slowly and mortgage rates come down. Redfin expects home sales to rise by just 3% in 2026, with many potential house buyers still priced out of the market.

One silver lining is that Redfin expects remodeling activity to increase as Americans opt to stay in their homes, but the ongoing affordability crisis could upend that prediction. Prices have generally been rising, with everything from groceries to cars getting more expensive. While homeowners can tap into their home equity for major remodels, this may be less appealing when economic uncertainty is high, and smaller projects could be put on the back burner.

Home Depot expects its comparable sales to grow by between 0% and 2% in 2026, with total sales up between 2.5% and 4.5%. The company also expects adjusted earnings per share to increase by 0% to 4%, partially erasing the decline from 2025.

A housing recovery would drive stronger growth, but the odds are long

While Home Depot's preliminary outlook for 2026 is its base case, the company also detailed a "market recovery case" that assumes momentum in housing activity and higher spending on larger projects driven by pent-up demand. Under this scenario, Home Depot would experience comparable sales growth of 4% to 5%, total sales growth of 5% to 6%, and adjusted EPS growth in the mid-to-high single digits.

Unfortunately, this rosy scenario doesn't look all that likely. Given the pressure building on U.S. consumers, a housing market recovery doesn't appear to be in the cards for 2026. Anything could happen, but at least another year of sluggish growth for Home Depot seems like the most likely outcome.

Home Depot stock has dropped about 10% so far this year, and it's down roughly 19% from its 52-week high. Even factoring in this decline, the retailer's valuation looks overly optimistic. Based on the high end of the company's 2026 outlook, Home Depot stock trades for about 23 times adjusted earnings. With minimal sales and earnings growth in the current environment, that seems pricey.

There's also a chance that the situation deteriorates further for Home Depot. If the U.S. economy worsens in 2026, the home improvement market could suffer a deeper contraction. In the long run, Home Depot is an industry leader that will likely return to solid earnings growth. For now, though, investors should be careful about overpaying for the stock.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Home Depot. The Motley Fool has a disclosure policy.