The effects are visible across the economy. Spending on furniture and related items
The Federal Reserve last year started a rate hiking campaign to tame inflation, and slowing the housing market is a key way to make that happen. In October, mortgage rates reached their highest level since 2000, helping to make housing the least affordable since at least the 1980s.
On Thursday, the effects of low affordability became even clearer: a gauge of
"It's just less affordable to buy a house today than it was a couple years ago when rates were much lower, and that's closed out a certain amount of spending that would have otherwise happened," said Jack Kleinhenz, chief economist at the National Retail Federation.
The average household shells out $8,000 more on home-related goods and improvements in the two years after a home purchase, according to
Falling Revenue
Without that expenditure, retailers are feeling the pain. Williams-Sonoma, owner of Pottery Barn,
Some firms have struggled to navigate the broad decline in consumer expenditures. A series of companies that provide home furnishings have sought bankruptcy protection this year, including Z Gallerie, Mitchell Gold + Bob Williams, and discounter
"From a creditor and trade vendor perspective, there's concern in the industry," said Jordana Renert, a partner in the bankruptcy department at law firm Lowenstein Sandler, referring to investors in stores that sell decor. "Until new home purchases pick up or mortgage rates decrease, I think the home-goods furniture industry may continue to see a pause in consumer spending and an increase in chapter 11 filings."
With mortgage rates having risen as much as they have, it's not clear when home purchase volume will resurge. Many homeowners are unwilling to sell, in part because that means letting go of the cheap mortgages they locked in during the pandemic. That's translated to relatively more of the transaction volume coming from
More than 60% of U.S. home loans have rates below 4%, according to data from Black Knight, while the latest 30-year Freddie Mac mortgage
"Lock-in can prevent households from pursuing labor market opportunities that would have been worthwhile otherwise," Fonseca said in an interview.
Homebuilder Pressure
Lofty interest rates aren't only crimping activity on the demand side, they're also pushing up prices on the supply side of the market and are threatening to keep them elevated for some time, said Robert Dietz, chief economist at the National Association of Home Builders.
The interest rate that homebuilders are paying to finance the construction of single-family homes is close to 13%, Dietz said, and material costs have risen alongside inflation. That has made it more difficult for builders to break ground on new homes now, which could squeeze supply for two to three years. The impact could be felt across the economy for some time, according to Dietz.
"If you take all the challenges in the housing market and think of them almost as taxes on new housing supply, those taxes are restraining economic growth," Dietz said.