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Inflation: It's not all bad news.



Inflation is NOT stopping! What does it mean for the real estate industry, consumer spending, and the opportunity for branding, when the Feds continue to increase interest rates…


What is Happening and Why?

At the half-way mark of year 2022, many people cannot wait for the year to be over as inflation accelerates. On June 15, 2022, the Federal Reserve officially increased the interest rates by 75 basis points, the largest hike since 1994. This is the third time this year, in a matter of 5 months, that the Federal Reserve has increased the interest rates. Rising interest rates are in efforts to combat the worst inflation the United States has ever seen. The negative impacts on the economy due to the coronavirus in 2020 has rebounded into one of the fastest growing economies in history. With demand at its peak and supply dwindling due to the effects of the coronavirus, inflation surfaced and skyrocketed. The only control the government has over slowing down the economy is by indirectly limiting consumer spending through rising interest rates.


Real Estate Industry Effected

The housing market has cooled due to the recent rate increases. In fact, the U.S. home builder sentiment plummeted in July to its lowest level since the early months of the coronavirus pandemic, as high inflation and the steepest borrowing costs in more than a decade brought customer traffic to a near standstill. The National Association of Home Builders/Wells Fargo Housing Market Index fell for a seventh straight month to 55, the lowest level since May 2020, from 67 in June. July's reading was below all 31 estimates in a Reuters poll of economists, which had a median expectation for a decline to 65. Moreover, the 12-point drop was the second-largest in the history of the series dating to 1985, exceeded only by the 42-point plunge in April 2020 when most of the country was under a COVID-19 lockdown.


We have already seen the real estate market start to cool with the higher rates, and home prices are starting to fall as lower demand sets in. We expect to see this trend through the end of 2022 and into 2023.


Consumer Spending

In the big picture, everyone suffers from inflation and rising interest rates. However, some suffer more than others. In addition to higher day-to-day expenses for energy and food, rates are nearly doubling, and analysts are projecting the Federal Reserve's interest rates to reach the mid to high 3%. But, the rates we’re seeing today are low relatively speaking compared to a decade ago a when rates were nearing 10%. Nevertheless, it is hard to accept paying significantly higher prices when only a few months ago, rates were nearly half.

According to the United States Consumer Confidence Index, consumer confidence has declined for a second straight month in June, and currently stands at the lowest level since February 2021. Ascending food, material, utility, and gas prices along with the rest of inflation, are the catalyst for weakening consumer confidence. Big purchases such as cars, homes, appliances, and vacations are becoming less common. Consumers have pessimistic expectations for the future, believing that this financial crisis will have a long-term impact on their confidence in the marketplace.


Impact on Consumer Goods and Opportunities for Branding

As we have seen before, economic downturns represent challenge and significant opportunity for brands to design and deliver the experiences that will help them not only survive but thrive as market conditions improve. During these challenging economic times which we expect to carry into 2023, it is more critical than ever to stay connected with your customers and deliver exceptional experiences to come out of the downturn in a strong position for the future.


Disclaimer: empatiX Consulting is never to be considered as a professional financial advisor or provider of financial advice. empatiX Consulting is NOT responsible or liable for any decisions made after reading this blog.


Sources

· https://www.bankrate.com/real-estate/how-fed-rate-hike-affects-housing/

· https://chicagoagentmagazine.com/2022/06/15/fed-hikes-interest-rates/

· https://www.forbes.com/sites/brendarichardson/2022/06/16/what-the-fed-interest-rate-hike-means-for-home-buyers/?sh=79884d3f16f6

· https://www.npr.org/2022/06/16/1105397522/who-are-the-winners-and-losers-of-the-fed-hiking-interest-rates

· https://www.cnbc.com/2022/06/15/fed-hikes-its-benchmark-interest-rate-by-three-quarters-of-a-point-the-biggest-increase-since-1994.html

· https://www.investopedia.com/articles/stocks/09/how-interest-rates-affect-markets.asp#:~:text=When%20interest%20rates%20decline%2C%20consumers,increases%20in%20demand%20increase%20prices

· https://www.macrotrends.net/2015/fed-funds-rate-historical-chart

· https://www.marketwatch.com/investing/index/comp

· https://www.conference-board.org/topics/consumer-confidence#:~:text=The%20Conference%20Board%20Consumer%20Confidence,2021%20(Index%2C%2095.2).

· https://www.reuters.com/markets/us/us-home-builder-sentiment-plunges-july-nahb-2022-07-18/







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