Homeowners are still hitting the pause button on home renovation projects.

High interest rates over the past few years pushed millions of Americans to cut back on or delay plans to remodel or renovate their homes.

“The higher interest rate[s] started to impact the housing market in housing turnover in particular, which is down some 40%. And I think last quarter, last month, we saw numbers that on an annualized basis, we're approaching 40-year lows ... impacting customers' interest in financing larger projects," Home Depot (HD) CEO Edward Decker said on the company's second quarter earnings call Tuesday. "Everyone's expecting rates are going to fall. So we're deferring those projects.”

The retailer said that its second quarter US comparable sales declined by 3.6% versus the 2.63% drop Wall Street expected. It now expects comp sales to fall 3% to 4% for the year versus the previous expectation of a 1% decline.

Existing home sales continue to slump this year as rates remain elevated and housing stock limited. That has contributed to a pullback in home improvement spending, which is often driven by new home purchases.

Investors are growing more confident that the Federal Reserve will cut rates starting next month, which has already driven mortgage rates lower.

Read more: Mortgage rates fall below 6.5% — is this a good time to buy a house?

Executives at Home Depot pointed out that there’s a direct relationship between lower mortgage rates and housing turnover.

Mortgage rates are “trending down. I think you're approaching 6.5% for a qualified mortgage. And based on what we saw towards the end of last year, we would think you're approaching a level that people are going to engage,” Decker said.

He noted that broader economic concerns could be a headwind but said that "as rates head down towards 6%, we would expect to see activity.”

The National Association of Homebuilders reported in mid-July that its Remodeling Market Index (RMI) fell 1 point to 65 in the second quarter from the previous quarter. A number above 50 indicates more remodelers view conditions as good versus poor.

“Some homeowners may be tempted to delay projects waiting for interest rates to decline, but this is offset by others who want to work with a remodeler now, fearing inflation may increase project costs if they wait,” NAHB chief economist Robert Dietz wrote in a statement.

Meanwhile, housing inventory is rising for both new and existing homes, which is a positive development for buyers.

However, Adam Baumgarten, managing director at Zelman & Associates, told Yahoo Finance, “The question is, are people going to be confident enough to buy a home in this market with all the talk of recession and things like that."

Dani Romero is a reporter for Yahoo Finance. Follow her on X @daniromerotv.

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