While artificial intelligence (AI) stole all the attention in 2023, investors shouldn't ignore other areas of the economy. The situation with the housing market is one that might have implications for your portfolio.

In 2023, home sales in the U.S. decreased 19% compared to the previous year, and this was after they had already fallen 18% in 2022.

The culprit? In early 2022, the Federal Reserve embarked on an aggressive rate-hiking cycle that lasted through the summer of last year. The resulting higher mortgage rates make buying a home less affordable.

Is there a smart way to play this trend in the housing market? Perhaps the environment makes Home Depot (HD 0.94%) a smart stock to buy right now. Let's consider if this is a worthwhile strategy.

Dissecting the situation

Higher borrowing costs certainly deserve the attention, but there's also low inventory for new homes. Add this to ongoing inflationary pressures, and it makes sense why housing activity fell. In fact, home sales in 2023 were the lowest in 28 years.

There's hope that with pressured demand, supply has the opportunity to catch up and balance things out. And with the central bank signaling multiple rate cuts this year, home sales have the potential to rebound in 2024.

The impacts for Home Depot

You might believe declining home sales would be a boon for a business like Home Depot. Fewer transactions would mean more people are staying put instead of moving, spurring demand for home renovation projects. With Home Depot holding top market share in the industry -- well ahead of rival Lowe's -- that would mean increased sales for the retailer.

But unfortunately, this isn't the case as Home Depot executives forecast revenue in the current fiscal year will decline 3% to 4% to about $152 billion. This would mark the first year annual sales have fallen since fiscal 2009.

Just as other consumer-focused and retail-based businesses have mentioned how inflation is pressuring consumers' spending behavior, Home Depot's customers aren't taking on larger projects, and big-ticket purchases are weak. With a recession still a possibility in the near term, many consumers may be trying to conserve cash in case there's a downturn too.

There might also be some lingering effects from the pandemic. Home Depot's sales rose double digits in fiscal 2020 and 2021, which might have pulled forward demand. The current headwinds could be the byproducts of a normalizing market.

The silver lining here is that long-term trends in the industry do favor steady growth for Home Depot. The average age of a home in the U.S. is 40 years old. Older houses typically require more maintenance and upkeep, so this is a key indicator the management team focuses on. Then, there's the housing supply issue. Based on population demand, it's estimated the U.S. is short 3.2 million homes, continuing a deficit that started in 2010.

Investors who have a time horizon of at least several years should take a closer look at this business. Nonetheless, it might still be best to wait until there are signs of improvement for the economy or housing market before buying shares.