Confident consumers seek bigger & better houses, creating turnover in pursuit of their forever homes. Homeowners lacking economic confidence are more likely to stay put, or even move in with other family members. This has important economic implications.
Housing Market Key Points
A healthy housing market requires a path for first-time homeowners to migrate to higher-end homes as they grow more financially established. This cycle creates a steady supply of new inventory as consumers sell their starter homes to buy higher-end second homes, while those in their second homes sell to pursue their next step.
This virtuous cycle has been upended as economic & safety uncertainties have undermined consumer confidence, which declined -39% from 98.5 (U of Michigan index) in January 2017 to 59.7 in December 2022. In turn, homeowners lacking confidence have been staying put (rather than pursuing upgrades), pressuring the housing supply & driving the prices of a smaller inventory higher (pushing the possibility of an upgrade farther out of reach). Of course, this downward cycle is aggravated by the sharp spike in mortgage rates (as the Fed fights to lower inflation – including housing costs – with higher interest rates), driving monthly mortgage payments higher, and the cost of homeownership upgrades even farther out of reach.
Notably, current housing demand is at least partially driven by those looking to downsize to lower their housing costs. According to Redfin: “A record 25% of Redfin.com users sought to move to a different metro area during 4Q22 as remote work allowed the few Americans buying homes to seek out less expensive areas amid an ongoing housing affordability crunch.” This is opposite of the previously discussed virtuous cycle…