Pandemic Boat Market Economics
By now, many, if not most, people are aware of rising home prices nationwide since the COVID-19 Pandemic. These higher prices have pushed homeownership beyond the reach of many households. Many of the same factors that drove home prices up also seem to have affected the market for sail and motor boats as a surge in demand led to widespread purchases of “pandemic boats.”
In the home market, real estate experts attribute much of the rise in home prices to lower interest rates and rising savings. Lockdowns, forced business closures, and other limits on our ability to spend money on vacations, eating out, contracting with in-person services, and even buying goods like refrigerators and stoves in “bricks and mortar” stores meant people redirected their cash into other areas.
As supply chains further limited our ability to buy goods from online retailers, investing in physical assets, like land or a more expensive home, was a natural if unanticipated outlet.
Complicating matters in the housing market was the inability to build more houses. Much of this supply restriction was regulatory—local communities are stingy when approving new housing—supply chain bottlenecks limited our ability to get goods and supplies to markets. Labor was scarce, too, as workers were paid to stay home, and pandemic savings reduced incentives for low-wage workers to return to job sites.
The logic and real-world effect is immutable: Demand goes up, supply stays the same (or goes down), and we have a classic recipe for higher prices in these key industries.
Pandemic Boat Industry Economics
Turns out, the market for boats mirrors these effects, as a recent article (Nov/Dec 2023) in the print edition of BoatU.S. magazine shows clearly. (Unfortunately, a digital version of the article is not accessible.) Contributing editor Fiona McGlynn uses data from the National Marine Manufacturers Association (NMMA) and interviews with marine industry experts to plot the story of soaring boat prices and why boat buyers may start experiencing some relief soon.
In 2020, McGlynn reports, boat sales skyrocketed to a 13-year high. This makes sense, although boats are not a particularly good investment vehicle. The old saying, or warning, is: “The second happiest time in my life was when I bought my boat. The happiest time was when I sold it.” The benefits are primarily intangible.
Nevertheless, households, particularly wealthier ones, sought “safe” ways to direct their energy and money. Boats are expensive and an outside activity.
A Surge in Boat Buying
Basically, people turned their $5,000 or $10,000 “canceled family vacation into the down payment on a new boat.” In any given year, about 25% of the boats sold on the market are new boats. A “flood” of new boat buyers—420,000—meant that 34% of boats sold in 2021 were to these newbies.
Notably, for reference, in a typical year, 90% of homes sold in the U.S. market are existing homes, according to the National Association of Realtors.
Meanwhile, the surge in demand for boats, like houses, was unexpected. “Most boat manufacturers,” McGlynn writes, “were expecting another spending pullback, as occurred after the 2008 economic crash, and decided to cut or curtail manufacturing just as demand was ramping up.” Prices “surged as used boat inventory shrank.”
Lower Income Earners Were Left Out
This all makes sense, particularly given the income dynamics of the pandemic. Lower-income, blue-collar, and hourly wage earners suffered. At the same time, salaried and upper-income households found their incomes stable or continued to rise.
As the Pew Center notes in “Covid-19 Pandemic Pinches Finances of America’s Lower and Middle-Income Families,” the COVID-19 “recession,” which in retrospect was induced by public policy, not economic fundamentals, was most acutely felt by lower-income households:
The financial hardships caused by the COVID-19 recession in the U.S. were endured mostly by lower- and middle-income families. From 2019 to 2020, the median income of lower-income households decreased by 3.0% and the median income of middle-income households fell by 2.1%. In contrast, the median income of upper-income households in 2020 was about the same as it was in 2019, according to a new Pew Research Center analysis of government data.
Middle-income and wealthier households mostly kept their jobs.
Because many boat manufacturers were also shut down and their supply chains disrupted, lower-income households didn’t benefit from the higher prices and surging demand. Existing boat owners did. And they tend to be wealthier.
Pandemic Shutdowns Hurt Low-Income Households Most
So, paradoxically, as public policy shut down the global economy, lower-income households bore the brunt of the economic impacts. Wealthier families, which typically own boats, benefited from the rising asset prices and higher prices from sales (from wealthy households).
In short, the COVID-19 Pandemic and lockdowns created a seller’s market as suppliers misjudged demand, boat manufacturing slowed or shut down, and a limited supply of used boats on the market commanded higher prices.
Boat Market Comes Back into Balance
During the peak of the pandemic effects, McGlynn notes, waiting lists for new boats reached two and three years.
Fortunately, new boat sales are beginning to recover, although they are still short of pre-pandemic levels.
This bodes well for boat buyers. As interest rates fall, “pandemic boats” go back on the market, and manufacturers ramp up production, prices will moderate and normalize. While we might not be looking at a buyer’s market, the boat sales market will likely return to normal within another year or so.