Frosty Realities: Navigating the Housing Market Chill and Its Ripple Effects
Rising interest rates from the Federal Reserve have impacted the housing market this year, causing a ripple effect on hardware stores, furniture sellers, and construction firms. Existing home sales hit a 13-year low in October, but there's a slight positive with an uptick in home construction last month after a prolonged decline since early 2022.
The sluggish housing market has repercussions for workers and businesses dependent on related spending.
Reduced Spending on Furnishings. Slumping home sales have led to a decline in spending on furniture and home improvement compared to 2022. Americans are also hesitant to move due to locked-in low mortgage rates, and those staying put are delaying major projects, influenced by high borrowing costs. Home Depot, for instance, reported its fourth consecutive quarter of sales decline.
Job Impact. Decreased housing spending translates to fewer jobs in real estate-related industries, including furniture, electronics retailers, and home improvement stores. Employment in the real estate sector has stagnated, and a recent court verdict is causing real estate agents to rethink their roles. Service jobs tied to housing, like landscaping, are also facing reduced demand.
Construction Slowdown. Construction spending on new and existing homes surged during the pandemic but has cooled as the Fed increased borrowing costs. Residential building permits, indicating future construction, were down nearly 30% in January year over year but showed a 4.1% increase in November year over year, suggesting a potential bottoming out. Housing starts declined earlier this year but rose significantly last month.
Going forward, experts predict the downturn for the real estate market could last a few more months, with depressed existing home sales persisting through the start of 2024.