Frozen Market

The cash registers at the Ruby's Coffee on Saturday are always buzzing, but down the street at the Home Depot, the orange-aproned cashiers spend their mornings, waiting for customers to show up. This store has always been the reliable guage of American domestic life, dropping its sales numbers in 2007 well before Wall Street realized the mortgage crisis was about to break the economy, and expanding wildly when the pandemic forced everyone to buy lumber and patio chairs. Now, according to its finance chief Richard McPhail, the retailer is watching a gridlock unlike any other, noting that housing activity has never stayed this slow for this long. This Economist story on Home Depot is worth reading. 

The trouble is that nobody is moving so it does not matter if the housing prices are rising or falling. Millions of homeowners are locked into pandemic-era mortgage rates of three percent or lower, holding onto those rates like an inheritance they cannot afford to lose. With new thirty-year mortgage rates hovering near six and a half percent, selling a house means swapping a cheap loan for an expensive one, creating a practical paralysis across suburban America. Economists call this loss-aversion, a psychological stubbornness where people refuse to sell an asset for less than they think it is worth, choosing instead to step away from the market entirely. It is the same freeze that stalled out properties in Britain, proving that the fear of losing ground crosses the Atlantic easily. I am definitely in this cohort staying in a house that I would have down-sized out of in other circumstances but now waiting for a better time to do so. Not a single house is on sale in my neighborhood so there are plenty more like me.

It was thought that recovery was coming earlier this spring because unemployment stayed low and household incomes were finally catching up to inflation. Then the closure of the Strait of Hormuz sent energy prices up, threatening to push inflation back into the red and keeping interest rates stubbornly high. People are still buying small things, the trowels and the little cans of satin-finish paint for a weekend project, but the major kitchen overhauls and bathroom gut-jobs have dried up. To survive the drought, Home Depot spent thirty billion dollars buying up wholesale distributors, trying to court professional contractors because the individual suburban homeowner has stopped spending.There are few improvements we would have done around the house but looking what it will cost, it does not seem worth it. If something's broken we fix it but improvements have been postponed indefinitely.