By Brad Hunter, HomeAdvisor’s Chief Economist
More than 5 million people move each year, either to a new city, or within a city or county. Every time that happens, it triggers a cascade of economic activity. Before the home is sold, the seller typically spends time and money fixing up the place and getting it ready to show, and then the new owner typically buys furniture, window treatments, artwork and much more. This is known as housing churn.
Housing churn is good for the economy, and the data have shown an increasing amount of it year after year.
When mortgage rates first start to rise, as they have done recently, some people feel a new urgency to “get off the fence” and buy before rates go higher. We have seen this driving builder confidence (based on current sales and traffic and expectations of future sales) to the highest level since the last peak, in 2005. Of course, later on, monthly payment-related affordability problems can start to squeeze down the rate of churn. But for now, the rate spike seems to be having a positive effect.
Why do people move?
It is easy to imagine that people move the most for a job, but the reality is that twice as many people move simply because they want a “better” home, according to statistics from the U.S. Census Bureau. This suggests that there is a lot of opportunity for home improvement to fill the home-related voids that people feel.
The National Association of Realtors’ surveys of home shoppers indicate that the most frequently checked box amongst movers is “tired of current home.” In fact, that is cited as a trigger for a move 25 percent of the time, while “change of job/job location” is cited as a trigger just 10 percent of the time.
Expanding on this, here are some of the most common reasons people cite for moving:
- Tired of current home,
- Job (new or relocation),
- Retirement,
- Health,
- Being closer to friends or relatives,
- Cost of housing,
- Family size (growing or shrinking), or
- Lifestyle
Observing that so many people move just because they are tired of their current home suggests that some of them could opt to remodel instead of moving. Homeowners could complete large renovations, such as a kitchen or bathroom remodel. Or, they could make smaller improvements.
What Business Activity Does Churn Stimulate?
In physics, the more molecules are moving around, the hotter the liquid. In housing, it’s similar: The more people are moving around, the hotter the level of economic activity. When people decide to move to a different home, they often spend money to increase the home’s appeal. That generates economic activity, and that activity has multiplier effects that ripple throughout many related sectors of goods and services.
To illustrate this with some real-world examples, HomeAdvisor’s data show that people who are just getting ready to sell a home have been hiring for help with the following. The index number indicates how much more than average people requested the task during the five-month period before they moved out of their homes.
Most Popular Projects Prior to Moving Index
Cleaning carpets 1.07
Install pre-made cabinets 1.07
Pest control 1.07
Major Home Repairs 1.06
Repairing a Water Purification System 1.06
The influence of flippers/investors in the market is evident in the instances of General Contractor and Cabinets.
HomeAdvisor’s data show that people who moved into a home within the last year have been hiring for help in the following categories:
Most Project Projects During or After Moving Index
Hiring a mover 1.30
Installing a water purification center 1.26
Tile & grout cleaning 1.21
Painting and staining projects 1.16
Major home repairs 1.14
HomeAdvisor estimates the total economic impact of the sale of an existing home to be between $37,000 and $45,000. This does not include the impact of the roughly 900,000 new homes that are built each year; this is only the impact from the churn of the existing stock.
One thing that has been holding back some of the growth in the volume of home sales is the sustained low number of listings for sale, relative to historical norms. This situation will pass; as more homeowners experience a return of equity in their home, many of the people who felt selling their home was not an option (because they owed more on the mortgage than the home was worth) will finally list and sell their homes. That will generate more economically beneficial churn in the future.