Housing Market Slowdown Affects Multiple Industries
John Matheson, a home inspector in Alameda, Calif., experienced a significant decline in his workload as housing interest rates surged midway through 2022. He noted a 50 percent decrease in jobs last year and is considering alternative work options, contemplating obtaining a commercial captain’s license for ferry operations.
The slowdown in the housing market, primarily influenced by high home prices and increased mortgage rates, adversely impacted several related sectors like real estate services and mortgage lending. The decline in existing home sales, down approximately 7 percent in November year-over-year, has affected industries such as home improvement and storage, creating a ripple effect across the economy.
Federal Reserve signals for upcoming interest rate cuts in 2024 offer a glimmer of hope for the residential market, traditionally sensitive to such rate changes. However, affordability challenges persist due to soaring prices, making homeownership unfeasible for many, despite mortgage rates dipping below 7 percent.
The dearth of available homes on the market also contributes to the housing market slowdown, as homeowners, benefiting from lower mortgage rates secured a few years ago, are hesitant to sell. The ongoing impact extends beyond real estate professionals to other services like title insurance, escrow companies, and home appraisers, all witnessing a downturn in business.
Furthermore, companies linked to moving and storage face challenges, with decreased demand due to reduced home sales impacting storage unit utilization and affecting the sales of furniture, appliances, and home electronics. The decline in purchases of big-ticket items like sofas and home stereo systems is evident, leading to decreased visits to home goods and electronics stores. This trend is particularly impacting younger adults, especially millennials seeking larger homes to start families, but facing inventory scarcity.
Home improvement retailers like Home Depot and Lowe’s also reported decreased spending on DIY projects in response to higher interest rates that elevated borrowing costs. While increased home values theoretically provide more equity for homeowners, access to that equity has become costlier, restraining mobility and impacting overall demand in the housing market.