Cap on SALT: Retail impact or Not?

Peter Boockvar is the CIO of Bleakley Advisory Group and Editor of The Boock Report.

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After listening to the Home Depot conference, their main concerns that impacted comps were weather, lower lumber prices and for the future, the possibility of higher tariffs. They didn’t seem concerned at all with the cap on SALT deductions in those states most affected.

This is what they said in the call, “There’s been a lot of conversation about what’s happening in home prices in LA. Our comp in LA was considerably ahead of our company for the first quarter. Let’s take a market like New Jersey where people are very concerned about what would happen to sales, given it’s a high SALT state and we see that New Jersey is actually outperforming the company average too. So trust me, we’re spending a lot of attention looking at performance by market, but we just can’t see anything at this point in a negative way.”

So, at least right now they see no impact but I’ll stick to my belief that if we keep seeing 10 to up to 30% home price declines for upper end homes in these key states, that will filter into lower prices down market and home improvement sales will get negatively impacted.

Lowe’s is getting hit hard this morning but on the surface from the press release it seems more of a cost issue than top line. I’ll report back on what they say about sales in high taxed states on the conference call.

We saw the 12% drop in Kohl’s stock yesterday and while they have secular challenges by being a department store, 27% of their store base according to their 10K is in NY, NJ, CT, CA, IL, and MA which combined make up a big chunk of GDP, about a third. Nordstrom stock is down about 10% after earnings last night and 40% of their full price store base is in those states with California alone making up 25% according to their 10K. We certainly know the higher end nature of the Nordstrom clientele.

A rather sharp 7 bps w/o/w decline in mortgage rates to 4.33%, the lowest since January 2018 did nothing to help the purchase component of weekly mortgage applications. They fell 2% w/o/w and are now down 4 of the past 5 weeks to the lowest level since mid March in this key selling season. The positive though is that they are still up almost 7% y/o/y. Refi’s were helped the most by the fall in rates as they jumped 8.3% w/o/w and are up 31% y/o/y. We see new home sales tomorrow for April which will be a more timely figure than yesterday’s existing home sales number which we know missed expectations.