Rising Interest Rates and Your Business
Posted February 8, 2023 by EnerBank USA
The past few years have been a roller coaster for most of us, and most recently, we’ve seen the fallout of inflation impacting every aspect of our lives. In the home improvement industry, there are some unique challenges we now must face. In this post, we’ll look at why rates are increasing as well as what can be expected moving forward.
Why Are Rates Increasing?
The Federal Reserve (also known as the Fed) oversees rates in the United States and is responsible for maintaining the country’s economic stability. When the rate changes, it’s usually in response to trends within the economy. For example, during the height of the COVD-19 crisis, rates were lowered to encourage consumers to borrow, spend, and invest to help boost the economy. Prior to 2022, the last time the Fed increased the rate was in 2018.
The recent changes are an attempt to regulate inflation, which is currently hovering at 6.5%. In order to keep the economy healthy and things running smoothly, the target rate is 2%.
How is This Expected to Impact the Repair and Renovation Industry?
The biggest impact on the home improvement industry because of inflation is higher material costs. In fact, we predict it to be one of the top challenges faced by contractors this year. If the Fed can bring inflation down prices should start to moderate, or maybe even decline, which of course, can mean more business for you.
If the Fed can’t tame inflation, however, this will continue to drive up material prices for the foreseeable future, as opposed to customer demand.
While not directly related, the rate of inflation and unemployment numbers can correlate. Right now, the unemployment rate is at an all-time low. This means many jobs, including those within the home improvement industry, are remaining empty.
Finally, many of your potential customers may be putting off their home renovation plans to cut down their spending. This can impact the amount of business that you’re receiving and, in return, further impact your overall cash flow.
How Will This Impact You?
Due to the economy, you could see changes in Fed rates over the next year. While the initial rate increase by the Fed took place in March of 2022, we held off on increasing our fees until November to provide our contractors with a better experience. This change is a natural market response to the shifting economic conditions facing homeowners and businesses alike.
Please note that no other aspects of your program, such as underwriting, are changing in response to this increase. You’ll continue to have access to all the great products, tools, and resources you’ve always had. Follow our blog to stay up to date on the market and how it could impact your business.
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