John Matheson, a home inspector in Alameda, California, stayed busy during the pandemic when the housing market was red hot. But when interest rates began to rise around mid-2022, he noticed his workload began to decrease. Last year, the number of jobs plummeted.
“My business is about 50 percent of what it was,” said Matheson, who works as a contractor for BPG Inspections, which serves home buyers nationwide. “As far as I’m concerned, it’s a really bad year.”
In fact, it’s so bad that “I’m actually thinking about side jobs,” he said, adding that he’s studying to receive a commercial captain’s license in hopes of getting a job operating a ferry or other ship if the housing market doesn’t work out. . rebound.
High home prices and high mortgage rates, which squeezed the housing market last year, have dragged down a number of other related sectors, such as real estate services and mortgage lending. But housing is such a crucial cog in the U.S. economy that its slowdown has also threatened industries such as home improvement and self-storage.
“Existing home sales are under a lot of pressure,” said Sean O’Hara, president of fund management firm Pacer ETFs. “We are coming out of a phase in which the real estate sector, across the board, had an excellent environment.”
Sales of existing homes, which make up the majority of the nation’s housing stock, fell about 7 percent in November from a year earlier, according to the National Association of Realtors.
Federal Reserve policymakers held interest rates steady at their December meeting and signaled that the central bank would begin cutting interest rates in 2024, offering hope to the residential market, which is more sensitive to changes in interest rates. interest.
The factors that prevented people from buying a home in 2023 were countless, including rising prices. The median price of an existing single-family home was $392,100 in November, according to the Federal Reserve Bank of St. Louis, making home purchasing unaffordable for a large portion of the population, even as rates mortgage rates have fallen below 7 percent.
Potential buyers also face a lack of homes on the market. Some homeowners don’t want to sell their homes and lose the low mortgage rates they got just a few years ago. About four in five homeowners with mortgages have a rate below 5 percent, and about a quarter have a rate below 3 percent, according to a study by online brokerage Redfin. Even baby boomers who might consider downsizing are finding that it may not be cost effective to get a new mortgage with rates at their current levels.
The contagion from the real estate market slowdown last year has been broad.
Professionals like real estate agents and mortgage providers are the most visible collateral damage, but other service providers (such as title insurance companies, escrow companies, home appraisers, and inspectors) are also seeing how his business dries up. Other once-hot markets are experiencing a similar shift.
“Our best year in business was 2021, at the height of Covid,” said Scott Patterson, owner of Trace Inspections, which offers home inspections in the Nashville area. “Then interest rates started going up and people just stopped buying houses unless they really needed it.”
Patterson said a combination of low inventory and high mortgage rates was slowing the number of home purchases, particularly among first-time buyers.
“The people who have been hardest hit are the ones who are buying homes to begin with,” he said. “Interest rates are really hurting them. “They are the ones we don’t see as much.”
Companies involved in moving and storing people’s belongings are also facing a slowdown that executives attribute to falling home sales. On a call with analysts in August, Edward J. Shoen, U-Haul’s president and CEO, blamed a contraction in moving activity for the company’s decline in first-quarter revenue.
Demand for storage units skyrocketed during the pandemic as people spent more time at home or took advantage of lower mortgage rates to buy a home. Developers capitalized on this and investor funds fueled the construction of new storage facilities across the country.
“What you had during the pandemic and after the pandemic was just an abundance of supply,” said Michael Elliott, equity analyst at CFRA Research.
As pandemic-era consumer patterns have slowed, some businesses have struggled. In September, analysts at Morgan Stanley lowered their price target on Extra Space Storage and a Wells Fargo analyst published a research note warning of overall weakness in the sector.
Storage companies have to choose between shoring up occupancy by cutting rates or raising them to generate more revenue, at the risk of customers abandoning their facilities for competitors.
Homeowners remodeled and redesigned during the pandemic, purchasing new recliners, refrigerators and wide-screen TVs. Now, retailers face a challenging sales environment.
Demand for furniture, appliances and home electronics has fallen, according to a 2022 Bank of America analysis. Fewer people are buying homes, which means less demand for big-ticket items like sofas and home stereo systems, it said. RJ Hottovy, head of analytical research. at the analytics firm Placer.ai.
So many people bought home furnishings during the pandemic years that those purchases supplanted those that could otherwise be made now, further depressing demand. In early September, Placer.ai found, visits to home goods retailers were down about 15 percent from a year ago, and visits to electronics stores were down 12 percent.
Younger adults are a big potential source of demand for these types of goods, experts say, since they would typically be looking to buy a home to start a family.
“I think a lot of millennials, in particular, are looking to move up, get a bigger house,” said Timothy S. Chubb, chief investment officer at wealth management firm Girard. “It’s been relatively impossible to do so, given the lack of inventory.”
That is translating into decreased spending on durable goods, he said.
Home improvement retailers face similar challenges. “Nothing about moving is happening, and that’s saying a lot,” said Scott Mushkin, founder and managing partner of R5 Capital, a research and consulting firm.
Home Depot executives told investors on a third-quarter earnings conference call in November that Americans were buying fewer big-ticket items. Lowe’s reported lower spending on DIY projects in the same quarter. Home improvement retailers typically benefit when people who can’t afford a new home decide to renovate their current home. But consumers had less appetite for big renovations in 2023 because higher interest rates raised the cost of borrowing.
Although the sharp rise in home values has given homeowners more value on paper, it has become more expensive to access.
“With the housing market the way it is, people can’t move,” said Elliott, the CFRA Research analyst. “That’s going to have an impact on demand.”
