By Mischa Fisher, Former Chief Economist, Angi
Est. Read: 5 minutes
As an economist who follows a lot of the media narrative around housing, I’ve seen firsthand how the discussion around housing and home improvement markets can be confusing … even for experienced industry executives. It’s easy to hear a lot of news about the housing market and take it at face value, but now more than ever it is important to have context for everything.
First, most economic trends have multiple effects, sometimes in competing directions.
For example, interest rates are rising and this has the effect of making debt, spending, and business expansion more expensive. We should also expect less consumer spending and fewer home sales. However, there’s an alternative impact: Higher interest rates anchor people to their existing homes and disincentivize moving. If you’re in the remodeling business, this means that millions of prospective customers who want a new kitchen or bath and might have moved to get it, are likely not going to do so. Why give up a relatively cheap mortgage to move to a new house when remodeling their existing home becomes a better deal.
Similarly, home prices have increased considerably over the last two and a half years. This has unfortunately pushed homeownership out of reach for many people. But, it has also created over $7 trillion in new homeowner equity to fuel remodeling and improvement spending.
Or take inflation, which is at the highest level in decades. It erodes buying power and hurts consumer sentiment, which reduces spending. But on the flip side, it’s also eroding the effective spending burden of millions of mortgages for homeowners, which in the long run will make homeowners proportionally wealthier.
Each of these occurrences is competing to shape how the market is evolving and you want to be sure you understand each aspect of these tradeoffs as you plan your business decisions.
The second reason why context is so important is that sometimes things are true but do not give the full picture of what’s really going on…. it’s the age-old forest for the trees problem.
For example, there is discussion of a housing slowdown based on month over month declines in some markets in prices, offers, and foot traffic. But this should not be mistaken for an actual shrinking of the market.
Take our latest research in The Market for Everything Home, for example, which estimates 10 percent growth in home improvement and the home service market this year. This may feel slow relative to the roughly 20% increases last year, but it’s still a healthy level of growth. And more sustainable too.
As we enter the second half of 2022, remember that this is a transitional year for the home service market. The explosive growth rate we saw last year as massive portions of consumer spending shifted to the home during the global pandemic has begun to taper off. But don’t forget other factors also shaping the market in the long term: family formation for younger generations, aging in place for older generations, growing consumer demand for high style living and advanced home amenities, geographic moving patterns, and shortages of skilled labor forcing more product innovation.
So, in order to keep your craft and your business up to date, it’s important that you understand all these market fundamentals.
For the 90% of homeowners who are locked in to mortgages with rates lower than 5%, their mortgage payment is no longer as large relative to all their other expenses which have grown due to inflation.
