Housing Market and Your Business
The big news on Friday was that the Federal Reserve Chair Jerome Powell signaled there would be an interest rate cut at the FED’s next meeting in September. The news was welcome to investors and the Dow rose almost 900 points propelling it to record highs.
The FED sets baseline interest rates for banks to lend money to each other, as such, this has a direct affect on the businessowner, and individual and the interest rate they receive to acquire capital to fund a business, pay off debt, buy a home etc.
The interest rates on home purchases for well qualified buyers has consistently hovered around the 7% mark in recent years, which is indeed high compared to interest rates the previous decade which saw lows close to 1%. With this cost increase on mortgages, the housing market has been stagnant. Home buyers who purchased their properties at those lower rates are staying put. High inflation, wages not increasing at a fast enough clip and the increased cost to borrow money (the average family looking at interest rates on mortgages closer to 10%) has led to Americans settling into their neighborhoods or current living situations for longer as compared to the previous decade plus. This situation has resulted in residents staying at their jobs, in communities, and schools, therefore keeping, and spending their money within local towns and cities.
The inability to attain cheap capital leads to a motionless consumer, still spending but moving less. A decrease in home sales mean flat home prices as well, in 2024 YOY growth in home prices was around 4.5%, comparably 2025 numbers have home value growth at only 0.8%, citing an increase in excess available inventory as well as the effect of high interest rates. In addition, home sales overall are also down more than 6% year over year.
Should the FED indeed lower rates in September, it would be by a low margin 0.25% and would only decrease further should inflation remain low, and the economy cools and stabilizes constantly. Experts predict the days of “free money” are over and the high mortgage rates are here to stay, while a 7% base line may be high, a new and steady consistent baseline of 5% within the next couple years, they argue, is going to be the new normal as the economy moves to a more “production driven” one, powered by tech, AI innovation and a resilient consumer.
What does this mean for your business? Lower home sales, a less transient America…
A couple things; first off perhaps the rebirth of stronger, more localized economies. More expensive living means less moving, families staying put and laying down longer term roots and commitments could mean an opportunity for local small businesses to do the same, particularly in smaller communities which had been hit hard by the covid era, lockdown-like situations which forced small businesses and employers to close leading to families and young individuals to move in search of looser regulations and more work.
A physically stable America will create more local investment in small businesses and employers, as a consistent consumer presence and need for community-based services grows. If you are running one of these types of local businesses a brighter future is more than likely ahead. As a local businesses owner strive to become that integral part of the community, be sure to integrate what you do into your community as much as possible, become essential, a settled in America will value the businesses and the people close to home now more than ever.
With home purchasing becoming less accessible, the already high and saturated renting market will continue to grow. For single or young Americans, renting is the more flexible and cost-effective option. Having a business that is able to engage with those individuals who value convenience and have access to more disposable income could be an avenue to consistent success.
Those working in an industry surrounding home sales and home building or maintenance should start to get more strategic and invest in good analysis plans. Staying in tune with the markets and shifting sentiments surrounding the industry is important. The US economy, while a large one, is also a local one, different states, counties and cities all have changing conditions, being in touch to the evolving environment your business operates in is essential to circumvent the growing industry pressure which will continue to cause attrition.
To gain personalized guidance for your business on this topic and others contact us.
- Vince Calace
Founder - Venture Business Development