Mortgage Slump Hits Home Decor Industry

Wednesday, May 21, 2014, 7:00 PM | Leave Comment

A few decades ago, buying a home was a dream for many people as only some people had enough cash to buy a large house. Today, buyers are provided with a bank loan that is specifically designed to buy home, and is known by the term mortgage. The bank or lenders give large amount of money, which you need to pay back with interest within particular time period.

The interest rates can be fixed or adjustable with the term length varying from 5 years to 30 years. Mortgage interest rates are highly sensitive to the financial market and often go high with economic condition of the country.

If you are looking for Mortgage Bury St Edmunds, there are a number of firms that can help you choose the best option by carrying out detailed examination of your financial circumstances.

The economic spheres react a lot whether the mortgage loans increase, decrease or remain the same. The changes in mortgage interest rates are very crucial for house owners and furniture industry.

During periods of economic growth, there is an increase in borrowing, which pressures up the interest rates. The interest rates on mortgage increase during inflationary periods, as a result of which lenders increase their rates to preserve profitability.

House owners who buy during these periods are likely to pay high interests on mortgages. As most of the homes are financed through money borrowing in the form of mortgages, housing industry is affected profoundly by this change in rates.

The collapse of housing industry sent shock waves to different businesses across the country. No other category is as affected as retail furniture business.

When the interest rates are low, people are more likely to borrow money, and when the interest rates are high nobody dares to borrow money.

So, people are more willing to take the mortgage when the interest rates are low. People stop buying houses if the interest rate is high. This eventually leads to the downfall of furniture industry as people stop buying furnishings.

When the housing market is robust, furniture retailers’ business grow rapidly. As there are not many chains in the furniture industry, retailers can’t absorb the downfall easily. They may not be able to negotiate with the manufacturers and house owners. Eventually, the furniture and home decoration industry experience downfall.

Loan interest rates easily affect the price elasticity of housing industry. When the rates go high, the cost of borrowing also increases giving rise to inelastic demand.

The Federal Reserve reduces the loan-funding rate for banks and encourages them to provide lower rates on borrowing, in case the housing market is in a slump. According to experts, the furniture industry will turn around and come back.

With every downturn, there is an upturn. When the housing market collapses, home décor chains like – Lowe’s or Home Depot suffered a lot.

According to the sales report, Home Depot tumbled 5.2% in 6 months compared to the previous year. The company blamed the residential constructions and home décor market for this downfall.

Struggle of retailers

The increase in loan interest is not a local problem. Furniture stores all around the country are facing this problem.

The confidence of the consumers has been shattered by the mortgage scams. When the housing market was robust, the furniture industry expanded. When the sales of housing sector shrinks, so do the retailers that sell home décor items.

When the mortgage interest rates are low, people are willing to invest in home décor and better quality furniture as they have more money for such investments. People decorate their home with latest dining tables, sofa and other items and the home décor industry flourishes.

Author Bio

Tom Wolfe has been writing since 2005. As a mortgage advisor, he can look after Mortgages Bury St Edmunds with ease. Tom is a well qualified person who can explain the mortgage options available without any obligation.

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