Hybrid Car Sales Boomed Despite High Rates. Why Not Housing (And Soda)?

The original post was written by Jonathan Miller, President and CEO of Miller Samuel Inc., from HousingNotes and can be seen here.

Despite the bad press EV and Hybrid cars have had recently with cold weather charging issues, the spike in interest rates that began in early 2022 didn’t seem to have the severe detrimental impact on car sales as it did on housing sales. With both, prices remained high despite the rates. Car sales took off and home sales slowed. Why?

With the chip shortage of 2022-2023, new car sale listing inventory collapsed as production stalled without the chips, so used car prices surged. Cars now account for 15% of global chip production (this is why I aspire to own late 1960s muscle cars). With an increase in chip production, new car sales are rising, taking some of the price pressure off of used cars even though they remain high.

UPDATE 4:23 pm ET One of our Housing Notes readers is a retired 40-year auto executive and he just sent me some feedback. He indicated that hybrids are much cheaper to build and sell than EVs and isn’t sure why the federal government is hyperfocused on EVs. Existing home sales have fallen sharply for two reasons – listing inventory has been historically low (but that’s changing in some markets), and mortgage rates remain a lot higher than during the pandemic (you can thank the lock-in effect). New home sales have stabilized since the Fed pivot in 2022 rather than fall. New supply can be created more directly (not dependent on broad economic changes), and homebuilders have a greater ability than homeowners to buy down mortgage rates.

Takeaways

Home buying tends to surge when the economy weakens causing mortgage rates to fall. The drop in rates brings buyers into the market. It seems counterintuitive, but we can’t talk about the Fed cutting rates while unemployment remains at 4% – plus they tend to wait too long to make a call.

Car buying tends to do better with a strong job market (which keeps rates high) and high wages. We continue to see high rates because of low unemployment, the latter of which helps the car market.

Of course, while you’re considering the car sales versus home sale economics, you’re probably having a drink, and it’s probably Dr. Pepper. It has to be because Dr. Pepper now ties Pepsi as the number 2 consumed soda.