- Today’s high interest rates are being felt in every corner of the economy, from the obvious (mortgage companies) to things like medical devices and marketing mailers.
- Some companies are suffering under high rates, such as speedboat makers whose customers can’t finance boat purchases anymore.
- Others are benefitting, such as homebuilders who are gaining customers as homebuyers are frustrated by a lack of existing inventory.
No matter what business you’re in, it seems that today’s high interest rates are having a major effect, for better or for worse.
High interest rates, driven by the Federal Reserve’s campaign of anti-inflation rate hikes are affecting companies that sell mortgages, chemicals, facelift machines, vacations, and pretty much anything else you can imagine.
While the Fed may have held its interest rate steady at its most recent meeting last week rather than raising it, future rate hikes are not off the table, and the business world is bracing for the fed funds rate rate, which influences interest rates on mortgages and all kinds of personal and business loans, to stay high for a long time. Here’s how corporate executives in different industries said their firms were grappling with the higher-for-longer-regime in recent earnings calls.
Printing company Quad/Graphics CEO Joel Quadracci: We are lowering our full year 2023 net sales guidance due to industry-wide print volume reductions in response to ongoing economic uncertainty, continued postal rate increases and the impact of rising interest rates on specific clients. At Quad, we have seen the greatest impact to categories most sensitive to rising interest rates, such as financial services, direct mail, including credit cards, insurance and loans.
Lumber company UFP Industries CEO Matt Missad: I’m not sure if there are too many cooks in the monetary policy kitchen, but it appears to me that instead of treating interest rates like slowly simmered pasta sauce and having patience, the cooks got anxious and made microwave ketchup instead. We will have to wait and see what happens next and react accordingly.
In housing, along with the rise in short-term rates, mortgage rates are now pushing 8% and a vast majority of homeowners have existing mortgages of less than 3.5%, which makes it difficult for many homeowners to justify a move. Single-family home sales have been resilient in part due to the lack of existing home resales.
Malibu Boats Inc. CEO Jack D. Springer: The silver lining is that across all of our brands. Those customers that are looking to buy are continuing to gravitate toward larger, more feature-rich boats … Importantly, these sales are often nearly all cash. Those customers utilizing significant financing when buying a boat are sitting on the sidelines in this more challenging interest rate environment.
Cosmetic medical devices
Medical device manufacturer Inmode CEO Moshe Mizrahy: As far as financing, what we said is that today a leasing cost is 14% to 15% annually. That’s the interest rate of leasing company charging customers.
So I’m sure that you will not take a mortgage with 14% to 15% interest rate. Although this is a working machine that generates money, but the return on investment with this kind of interest rate will take longer. And of course doctors are afraid what will happen. The economy is slowing down. Everybody can see that … We believe that doctors will think twice if they want to do it.
Vacations at resorts
Marriott Vacations Worldwide Corporation CEO John Geller: Looking forward, travel demand continues to revert to historical patterns and economic conditions are mixed with consumers starting to feel the impact of higher interest rates and inflation.
Financial services and insurance company Equitable Holdings CEO Mark Pearson: We are also benefiting from higher interest rates, which are at levels we haven’t experienced in over 15 years … Higher interest rates have also been a tailwind for our wealth management segment.
Home security company ADT CEO James DeVries: While higher mortgage rates have caused many homeowners to delay relocating, which historically would be a catalyst for new customers, we have actually benefited with continued high retention in our existing customer base and are focused on providing incremental security and smart home offerings to these customers.
Homebuilder Tri Pointe Homes, Inc. CEO Douglas Bauer: Despite these hurdles that have put a strain on housing affordability, the demand for new homes has remained positive throughout the third quarter… This demand is fueled by the strong job market, and historically low housing supply. The housing supply shortage has played a crucial role in bolstering the new homebuilding industry’s performance under today’s higher rate environment. Because the existing home buyers who in previous years secured locked-in rates well below current levels, are now reluctant to sell.
This locked-in effect significantly reduces resale home supply, as trading up to current market rate levels creates affordability challenges for a vast number of homeowners.
Chemical company Westlake Chemical Partners CFO Mark Steven Bender: I think the compounding effect of the rising mortgage rate is certainly having a dampened effect on demand. And certainly, as we know there’s a large macro backdrop that is concerning to many homebuyers or potential homebuyers because of the macro uncertainty in the economies and, of course, the compounding effect of nearly 8% plus mortgage rate and a 30-year mortgage is even a higher hill to climb, if you will, than just six months or a year ago.
Provident Financial Holdings, Inc, (a bank) CEO Craig Blunden: Currently, it seems that many real estate investors have reduced their activity as a result of rising mortgage and other interest rates. Additionally, we’re seeing more consumer demand for single-family adjustable rate mortgage products as a result of higher fixed rate mortgage interest rates.