by While this week’s 1st interest rate decrease in 4 years is indeed welcome, housing affordability remains a key issue, particularly for younger consumers
WASHINGTON — News of the Fed’s first rate hike drop in more than four years offers a glimmer of hope for borrowers of all kinds, particularly those looking to buy a home. And that certainly means good news for the furniture industry as home sales tend to spur furniture purchases.
The good news is also that more rate decreases could be on the horizon, further lowering borrowing costs for home buyers of all ages.
But the news also needs to be put in perspective, particularly in light of the cost of both new and existing homes all over.
According to Statistica, the average cost of a new home in the U.S. was $511,100 last year, which was down slightly from $540,000, the year prior, but up 10.1% from $464,200 in 2021 and 30.4% from 2020.
Existing home sales prices, by comparison, averaged about $416,700 in August, up 3.1% from $404,200 the same period last year, according to the National Association of Realtors. They also were up 6.6% from just over $390,000 a year earlier and 34.4% from $310,000 in August 2020.
Thus, inflation has guided the housing market just as it has other consumer purchases. Of course we don’t hear much complaining from the sellers.
And much like inflation on other goods — ranging from the cost of food and clothing to the cost of entertainment, all of which largely support increased incomes — rising home prices have allowed home sellers to cash in on their investments and then some. Of course the same model also encourages home builders to build larger and more expensive homes, again, also making more money for themselves and their employees.
Yet the way this trend has taken shape since the pandemic, you might think it’s been the best home building and selling market in a generation. Unfortunately, that’s not so. Most year-over-year housing construction and existing home sales we’ve tracked here at Home News Now have been down for months on end, although there have been bright spots here and there, as seen in the latest home construction report. Thus, the price of homes appears extremely inflated and not bearing any semblance to what the market will bear.
Which leads us to ask, where does this leave the first-time homebuyer? A recent study we’ve referenced previously from luxury bath specialist Badeloft sheds some light on the issue by highlighting the annual income needed to buy a home in each state. Based on the data, some may end up being able to afford a home, but end up cash strapped when it comes time to buying furniture. That’s a big issue considering that young consumers represent the largest buying segment for home furnishings.
For example, our latest Consumer Insights Now research, which publishes Monday and continues for another five successive weeks, shows that Gen Z, combined with younger and older millennials alike, will represent nearly 70% of furniture purchases in the second half. This aligns with prior CIN research dating back two years, when we published our first survey results.
It’s an impressive statistic that aligns with our industry’s collective efforts to develop product for this segment of the population, through a combination of style, scale and price. To those who’ve dedicated time, energy and resources to these efforts, Bravo for being way ahead of this trend.
But will the housing market cooperate? Certainly a half percentage point drop in interest rates helps. But the overall cost of housing is another essential element that’s needed to help facilitate furniture sales, particularly among younger consumers.
Thus, we and many we’ve spoken to in the industry believe it is critical to develop affordably priced starter homes in every community to support the influx of younger home buyers. Recently, a housing development here locally in Kernersville, North Carolina, that would have created new starter homes got turned down because of concerns over traffic and other related issues. Yet just a mile or so up the road, another new development was also just getting started with homes starting in the $400,000s, which probably means around $499,999 for those familiar with real estate marketing speak regarding home prices.
But buying a home also means more education for younger buyers that will help them not get in over their heads financially, hence being drawn to the “new homes starting in the $400,000s.” As we’ve said previously, owning a home also means budgeting for things one never considered as a renter, including the cost of appliances, homeowners insurance, taxes, water and electricity, along with replacing an HVAC unit and perhaps even a roof on an existing home somewhere down the road.
And, of course, it also means budgeting for the cost of furniture, as many buyers may want to transition from hand-me-down pieces from their parents or grandparents to brand-new decor that lets them put their own stamp on their newly acquired real estate investment.
Will further rate hikes be warranted as we move toward year end? Likely so. But housing affordability and education about how much house one can afford, particularly in one’s younger years, is probably needed, too. And that’s especially true if we want all these anticipated home sales to materialize into furniture sales.
