The cold on the housing market is seeping through to other sectors

John Matheson, a home inspector in Alameda, California, stayed busy during the pandemic when the housing market was red hot. But when interest rates started to rise in mid-2022, he noticed his workload started to drop. Last year the number of jobs fell.

“My business is about 50 percent of what it was,” said Mr. Matheson, who works as a contractor for BPG Inspections, which provides services to homebuyers across the country. “As far as I’m concerned, it’s a very bad year.”

So much so that “I’m actually thinking about side jobs,” he said, adding that he is studying for a commercial captain’s license in hopes of getting a job operating a ferry or other vessel if the housing market doesn’t do so. bounce back.

High house prices and high mortgage rates, which put pressure on 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 like home improvement and warehousing.

“Existing home sales are under so much pressure,” said Sean O’Hara, president of fund management firm Pacer ETFs. “We are more or less coming out of a phase where real estate had an excellent environment across the board.”

Sale of existing homesthat make up most 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 kept interest rates steady at their December meeting and indicated the central bank would start cutting rates in 2024. This offered hope to the housing market, which is more sensitive to interest rate changes.

There were numerous factors keeping people from buying a home in 2023, including rising prices. The average price of an existing single-family home According to the Federal Reserve Bank of St. Louis, interest rates reached $392,100 in November, making home buying unaffordable for much of the population, even as mortgage rates have fallen below 7 percent.

Potential buyers are also faced with a shortage of houses on the market. Some homeowners don’t want to sell their homes and forfeit the low mortgage rates they had just a few years ago. About four in five homeowners with a mortgage have a rate lower than 5 percent, and about a quarter have a rate lower than 3 percent, according to research by online broker Redfin. Even baby boomers who may be considering downsizing are finding that taking out a new mortgage with an interest rate at current levels may not be cost-effective.

Contagion from last year’s housing market slowdown was widespread.

Professionals like real estate agents and mortgage lenders are the most visible collateral damage, but other service providers – such as title insurance companies, escrow companies, home appraisers and inspectors – are also seeing business dry up. Other once-popular markets are seeing a similar shift.

“Our best year in the industry was 2021, at the height of Covid,” said Scott Patterson, owner of Trace Inspections, which provides home inspections in the Nashville area. “Then interest rates started to rise and people stopped buying houses unless they really had to.”

Mr Patterson said a combination of low inventories and high mortgage rates was slowing home purchases, especially among first-time buyers.

“The people who are most affected are people who are buying starter homes,” he said. “The interest rates are really hurting them. They’re the ones we don’t see that often.”

Companies involved in moving and storing people’s belongings are also experiencing a slowdown that executives attribute to declining home sales. In a call with analysts in August, Edward J. Shoen, president and CEO of U-Haul, blamed a contraction in moving activity. a decline in the company’s sales in the first quarter.

Demand for self-storage units soared during the pandemic as people spent more time at home or took advantage of lower mortgage rates by purchasing a home. Developers benefited, with investor funds fueling the construction of new storage facilities across the country.

“What you had during the pandemic and post-pandemic was just an abundance of supply,” said Michael Elliott, equity analyst at CFRA Research.

As pandemic-era consumption patterns have declined, some businesses have struggled. In September, Morgan Stanley analysts lowered their target price for Extra Space Storage, and a Wells Fargo analyst published a research note warning of overall weakness in the sector.

Storage companies must choose between increasing occupancy rates by lowering rates or raising them to generate more revenue – with the risk of customers defecting to competitors.

Homeowners have remodeled and redecorated during the pandemic, purchasing new armchairs, refrigerators and widescreen TVs. Retailers are now facing a challenging sales environment.

Demand for furniture, appliances and home electronics has fallen, a 2022 Bank of America analysis shows. Fewer people buying homes has led to lower demand for high-priced items such as sofas and home stereo systems, says RJ Hottovy, head analytical research. at the analytics company Placer.ai.

During the pandemic years, so many people bought home furnishings that those purchases took the place of purchases that would otherwise be made now, further reducing demand. In early September, Placer.ai found that visits to home goods retailers were down about 15 percent from a year earlier, 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, as they typically want to buy a home to start a family.

“I think a lot of millennials in particular want to move and have a bigger house,” said Timothy S. Chubb, chief investment officer at wealth management firm Girard. “It has been relatively impossible to do this given the lack of inventory.”

That translates into a decline in spending on durable goods, he said.

Home improvement retailers face similar challenges. “Anything related to moving isn’t happening, and that’s a lot,” said Scott Mushkin, the founder and managing partner of R5 Capital, a consulting and research firm.

Executives at Home Depot told investors about this third quarter earnings call in November that Americans bought less expensive items. Lowe’s reported lower spending on DIY projects in the same quarter. Home improvement retailers typically benefit from the fact that people who cannot buy a new home decide to renovate their current home. But consumers had less appetite for major renovations in 2023 as higher interest rates pushed up borrowing costs.

Although the strong increase in home values ​​has given homeowners more equity on paper, accessing it has become more expensive.

“Now that the housing market is here, people can’t move,” said Mr. Elliott, an analyst with CFRA Research. “That will have an impact on demand.”