The world of finance has been rocked by interest rate rises in recent months, and this has created ripples in many other industries and contexts.
Homeowners are faced with the most significant potential for disruption as a result of this, and in turn the impact is being felt in manufacturing and beyond.
So how do things stand at the moment, and what can we expect from the market going forward over the coming 12 months?
Inflation is pushing rates up
In the most recent move by the Federal Reserve, interest rates were increased to 4.5% as an anti-inflationary measure to deal with the rising costs of fuel, food and other essentials. The Bank of England took similar measures, although rates sit at a more modest 3.5% for UK homeowners.
This means that those with money to save are in a good position, but those with home loans that aren’t on a fixed rate are faced with the prospect of a steep spike in their monthly repayments.
Most significantly this state of affairs isn’t going to get better until at least 2024. Rates won’t fall until then, but they could still rise.
Home owners are therefore having their household budgets squeezed significantly, leaving them with less disposable income, and denting consumer confidence at a time of post-pandemic recovery.
Some mortgages are still great value
From a mortgage financing perspective, rising rates of interest don’t necessarily translate into a bad deal for homeowners and prospective buyers.
In fact shopping around for a good deal is still possible, and the attraction of fixed rate mortgages is obvious at the moment. Anyone who’s eligible for a favorable package with a low rate that they can lock in for several years will be able to weather the storm and not worry too much about the prospect of further rises in the Fed’s benchmark rate.
Demand for homes is volatile and geographically variable
Even with the cost of getting a mortgage going up, it’s hard to speak generally about the housing market with any degree of accuracy, because of how varied levels of demand are depending on where you’re looking to buy.
In major urban centers like New York City and London, there’s still more demand for housing than there is supply to meet it, which pushes up property prices.
Meanwhile in more isolated regions, the increased cost of borrowing coupled with an overabundance of available properties leads to the potential for falling property prices.
What this means for manufacturers
From a manufacturing perspective, 2023 is already shaping up to be a challenging year. This will be exacerbated by interest rate rises, because as home owners feel the pinch, they’ll splash out less on products and luxuries in order to cover their mortgage repayments.
In a sense, this may actually be a good thing, since a decrease in demand will enable firms to get back up to speed as they continue to contend with the supply chain issues that have been a reality of everyday operations since the pandemic began.
Additional investment in efficiency-boosting technologies will mean that higher quality products can be created without steep overheads or waste, so even if manufacturers do have to contend with muted demand, they won’t be left lumbered with losses.
The global economy is still on shaky ground at the moment, and while high interest rates can represent times of prosperity, that’s not the case at the moment. Homeowners and manufacturers alike would do well to plan ahead, pay attention to changes, and prepare for an ongoing period of uncertainty.