The Federal Reserve is expected to cut interest rates for the first time in two and half years when the board meets in September—a move that flooring dealers say would be an important first step in stimulating demand for flooring.
As of now, the question isn’t so much “if” the Fed will implement rate cuts, but rather “how much.” Fears of an impending U.S. recession have some Wall Street economists betting the Fed will approve an interest-rate cut of half a percentage point—or 50 basis points—when policymakers meet Sept. 17-18. A reduction in interest rates will eventually lower the cost of borrowing money and, theoretically, would positively affect the housing market. At the same time, restoring the flooring sector to full health may require multiple rounds of cuts, according to industry executives.
Among the more bullish retailers is Kelby Frederick, co- CEO of My Flooring America, Denton, Texas, who said, “I believe rate cuts would stimulate consumer activity in our sector as it would have a positive impact on the housing industry. Whether it’s an increase in new construction or existing home sales, we always benefit when houses change hands. It would also decrease our costs to use financing to close retail sales. But mostly, I feel it would create positive consumer sentiment as everyone has been feeling the negative impact of the high interest rates the past few years.”
Other dealers agree that a cut of 25 or 50 basis points from today’s 5.25%-5.50% range would give business a meaningful boost. “It would spur more buyers into the new home market either as first-time buyers or buyers moving up to a larger home,” said Tom Heffner, president, About All Floors, Douglassville, Pa. “I would also expect it to create more inventory on the resale market as more people would be willing to upgrade from their current homes.”
Others believe a bigger rate cut than what’s likely to take place in September is needed. “To create a truly positive outlook among the type of customers we have not seen making purchases since 2020, we feel interest rates need to get down to 4.5%, which the Fed is expected to do in November,” said Ted Gregerson, president of Ted’s Floors & Beyond, Anniston, Ala. “If interest rates get to 4.5% by the end of the year, we believe customer traffic will finally get back to what it was before 2020. Interest rates is one of the biggest factors to our traffic being what it should be. When interest rates are at least in the low 4’s, consumers are willing to borrow money to make home improvements and/or use credit cards to do so. Lower interest rates also cause consumers who have cash to be willing to use it on home improvements instead of allowing it to draw interest.”
While all agree lowering interest rates will help to some degree, executives say mortgage rates must also drop for the housing market to receive the jolt it needs. Mortgage rates on 30-year fixed loans have been trending downward of late, and now stand at around 6.56%—albeit still not enough for some. “The real turning point for our business will come when mortgage rates drop to 5.9% or lower,” said Bruce Odette, president of Denver-based Carpet Exchange. “At that level, we should see increased activity in the housing market, as more people will be able to afford buying homes again. This, in turn, should lead to an increase in residential remodeling projects.”
It should be noted that mortgage rates are tied to the 10-year treasury, not the Fed, but can be influenced by the same economic factors that affect the agency’s decision to raise or lower rates.
Like many of his cohorts, Joel Schreier, president of Home Carpet One in Chicago is of the mind that September’s expected cuts is a good place to start but shouldn’t end there. “How is this for a prediction: it can’t hurt,” he said. “I think it will take some time and further cuts to motivate those holding homes with lower mortgage rates to finally put their homes on the market because they feel like they can afford to get a new mortgage on wherever it is they want to move.”
Schreier’s sentiment was shared by others, including Eric Langan, president/owner of Carpetland USA (The Langan Group), Davenport, Iowa. “I don’t think a rate cut will make much of a difference on the retail side of the business. However, I think the new construction/commercial side of the business may get a slight boost.”
As a business skewed toward residential remodel, Napa, Calif.-based Abbey Carpets Unlimited has felt the pain of longstanding high-interest rates. “Not many people have been refinancing for a remodel or selling their home due to the high rates,” said Janice Clifton, owner. “I would hope that reducing the Fed rate by this small amount would help us. Since mortgage rates would probably remain fairly high I’m not sure how much of a push this will give us.”
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