The COVID-19 pandemic has significantly altered the housing market and consumer spending habits.
During this time, the demand for housing increased, home prices appreciated swiftly, inflation rose, supply-chain disruptions occurred, and mortgage rates transitioned from historic lows to elevated levels.
These changes raise significant questions regarding the duration of the spending boosts associated with a home purchase and the extent to which home buyer spending patterns have evolved.
After analyzing the pooled Consumer Expenditure Survey (CES) microdata from 2020 to 2023, we have determined that the initial year after purchase results in a nearly identical increase in spending for purchasers of newly constructed and existing single-family detached homes, with an average of $8,750 and $8,674, respectively.
The primary distinction is not the quantity of additional expenditures, but rather their composition. The expenditures of buyers of newly constructed homes are higher in terms of furnishings, while those of buyers of existing homes are higher in terms of property alterations and restorations.
The majority of appliance purchases are made within the first year of purchasing a home for both groups.
Home Buying Contributes to Spending
The effect of the home purchase itself is overstated when comparing group averages alone, as these socio-economic characteristics also influence spending.
Consequently, it is advisable to determine the extent of the additional expenditures that are associated with the acquisition of a home, after accounting for these disparities[1].
We then employ the results to compare the predicted spending of comparable households in various homeownership scenarios.
After accounting for variations in household characteristics, Table 1 illustrates the impact of purchasing a newly constructed residence on household expenditures.
The estimates compare the same household under two scenarios: if it purchases a newly constructed property and if it does not relocate. The Year 1, Year 2, and Year 3 columns display the anticipated annual expenditures of a typical newly constructed home buyer during the initial three years following the purchase of a home.
The “If Not Moving” column indicates the anticipated expenditures of the same household if it were to remain in its present residence for one year.
The differences in parentheses indicate the additional expenditures that are associated with purchasing a newly constructed home in comparison to a nonmoving counterpart.
It is anticipated that the average new home buyer will spend approximately $2,722 annually on appliances, $2,354 on furnishings, and $9,660 on property alterations and repairs if they do not relocate.
Spending increases in all three categories within the initial year of purchasing a newly constructed residence.
The furnishings category experiences the most substantial increase in anticipated expenditures, which amount to $7,236, which is approximately $4,882 more than the expenditures of an otherwise identical non-moving homeowner.
Additionally, the expenditure on appliances increases significantly to $4,475 (+$1,752).
Although this increase is not statistically significant, property alterations and repair spending has increased to $11,776 (+$2,116).
The spending boost fluctuates over time.
The expenditure on appliances is primarily concentrated in the initial year following their acquisition and subsequently approaches the level of non-moving goods.
This indicates that households continue to furnish their homes over time, as furnishing expenditure also reaches its peak in the first year but remains moderately higher in the second and third years.
Conversely, there is minimal indication of a sustainable increase in property repair and alterations expenditures.
This pattern is consistent with the fact that newly constructed homes necessitate fewer repairs and replacements.
Consequently, post-purchase property alterations projects are generally more discretionary.
Table 2 provides a comparable comparison for households that exhibit characteristics that are indicative of an existing home buyer.
A typical buyer of existing homes spends significantly more during the first year after purchase than otherwise identical homeowners who do not make any investments in appliances, furnishings, and property alterations and repair projects.
The anticipated annual expenditure of $13,882 is the highest, with an additional $5,498.
This increase is primarily due to property alterations and restorations.
In addition, the average purchaser of an existing home allocates an additional $1,973 for appliances and $1,202 for furnishings.
The initial year following the purchase is the period in which the majority of existing home buyers allocate more funds to appliances.
Furnishing expenditures experience a decline after the initial year, but they continue to be moderately elevated throughout the third year.
The most persistent expenditures are those related to property repairs and modifications.
Buyers of pre-existing residences continue to allocate a substantial amount of money toward property modifications and repairs, even in the second and third years following their acquisition.
This consistent spending is indicative of the fact that existing residences frequently necessitate renovations, repairs, and deferred maintenance, which are executed over time following the purchase.
[1] Tobit regression is implemented in this statistical analysis due to the fact that numerous households report no expenditures in a specific category.
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