The housing market, workers, and the economy are all stuck

The U.S. housing market is experiencing its lowest home turnover rate in nearly 30 years, with only 28 out of every 1,000 homes changing hands through September, representing a 30% decline from the past decade's average. This stagnation, attributed to a slowing labor market and homeowners' reluctance to trade low legacy mortgage rates for current higher ones, signals economic unhealth and reduced employment mobility. While recent easing mortgage rates have slightly boosted sales, high borrowing costs and a 53% increase in median home prices over six years continue to constrain market activity, reflecting broader economic challenges.

Analysis

The U.S. housing market is experiencing its lowest home turnover rate in nearly 30 years, with only 28 out of every 1,000 homes changing hands through September. This 30% decline from the 2012-2022 average signals significant market stagnation. Redfin's chief economist deems this "not healthy for the economy," highlighting broader economic implications.

This low turnover is primarily driven by a weakening labor market and high mortgage rates. Job additions slowed to 22,000 in August, with ADP reporting a private sector loss of 32,000 jobs in September, alongside announced cuts from Microsoft and Amazon. Homeowners with low legacy mortgage rates are disincentivized to sell and acquire new homes at current elevated borrowing costs.

Despite a recent easing of the average 30-year mortgage rate, affordability remains a critical barrier. The median sales price of previously occupied U.S. homes has surged 53% over the past six years, limiting homeownership access. This confluence of factors sustains a housing market slump dating back to 2022, despite recent slight sales acceleration.

Key Decisions for Investors

• Maintain a cautious stance on residential real estate and related sectors, as prolonged low home turnover and affordability issues present headwinds.
• Assess exposure to consumer discretionary stocks, given the "low-hire, low-fire" labor market and reduced consumer mobility impacting spending power.
• Closely monitor labor market data and mortgage rate trends for signs of economic stabilization or further deterioration, which will dictate housing market recovery.
• Evaluate the implications of job cuts by major corporations like Microsoft and Amazon, as these signal broader corporate caution and potential economic slowdown.