The cost of lending is rising as mortgage rates continue to shoot up—and that will impact the bottom lines of homeowners and borrowers alike. Mortgage rates are more than two percentage points higher than at the start of the year, after registering the biggest quarterly climb in 28 years in the first quarter. That means anyone hoping for rates to fall may be waiting for a while. There is a relationship between the housing market and the discount store market. Liquidation buyers are seeing things change again, as the consumer has less discretionary income to spend and the closeout process is changing. Overstock inventory buyers and closeout brokers, super busy only 1 year ago, are feeling the swift change as consumers put the breaks on buying new homes and are shopping less.
Rising inflation is one reason rates are expected to climb. In May, the consumer price index (CPI) rose 8.6% compared to a year ago, its highest level since 1981. Another catalyst has been the Federal Reserve. The central bank started hiking the benchmark interest rate in March, and more recently raised rates 75 basis points—the biggest such increase since 1994. This is an effort to tamp down consumer spending and inflation which has been the highest in 40 years. Closeout brokers have been helping businesses get rid of too much inventory created by rising interest rates. The liquidation process and closeout process of businesses selling surplus inventory for cash is on the upswing again. For almost all of 2021 there were few closeouts available as business was strong and little need to get rid of inventory. But now, with inventory levels increasing there is a need for closeout brokers and liquidation buyers to purchase dead stock for struggling businesses. Only when inflation calms down will mortgage rates also begin to stabilize,” says Lawrence Yun, chief economist for the National Association of Realtors (NAR). Rates for a 30 year fixed rate mortgage have already surged to 5.7% as of June 30, up from 2.98% a year ago, according to Freddie Mac.
Rising inflation and the Federal Reserve’s monetary policy are all putting pressure on mortgage rates. As inflation increases, the Fed reacts by applying more aggressive monetary policy, which invariably leads to higher mortgage rates. This makes borrowing rates to business much higher, increasing their costs and putting pressure on profits. One thing businesses do to increase cash flow is have an inventory liquidation sale to get rid of any closeouts and slow moving inventory. Experts are forecasting that the 30-year, fixed-mortgage rate will vary from 5% to 7% by the end of 2022. Here are their more detailed predictions, as of late May 2022. With mortgage rates quickly rising, homeowners are racing to save money on refinancing.
Currently, the average rate on a 30-year fixed mortgage is hovering around 5.7%. This leaves barely half a million homeowners able to refinance their mortgage, according to Black Knight, a data analytics company. Each time rates inch up, fewer borrowers will be able to save money by refinancing. Refinancing has been a great way for consumers to put more money in their pocket and have extra cash for buying closeouts, overstock inventory and other deals on liquidation inventory from manufacturers and importers. When the consumer has less to spend, there can quickly be a trickle down reaction to wholesalers who rely on consumer spending to keep their goods moving. They may soon see a backlog in orders leading to too much inventory sitting the the warehouse. This forces them to re-evaluate their closeout process and they may offer steep discounts to liquidation buyers in order to move overstock goods. Black Knight defines refinance-eligible borrowers as having a minimum of 720 credit scores, 20% equity in their home and the ability to shave off at least 0.75% of their interest rate by refinancing into a 30-year fixed mortgage. As inflation intensifies and the Federal Reserve is poised to move aggressively next week, the average rate on 30-year mortgages fell slightly to 5.76 percent this week from 5.77 last week, according to Bankrate’s national survey of large lenders. The Federal Reserve raised rates three-quarters of a percentage point last month and is expected to do the same again next week, a strong policy move that portends rising mortgage rates. The central bank is ramping up efforts to fight inflation, which has remained high after a bout of pandemic stimulus. In June, annual price increases clocked in at 9.1 percent. This inflation has a direct net affect on closeout merchandise, inventory liquidators and closeout websites selling overstock and excess inventory. High inflation puts pressure on consumer spending and liquidation stock, and can lead to closeout brokers having to help businesses shut down warehouses and downsize 3PL's.
The rise hasn’t been straight upward. Mortgage rates are being whipsawed by concerns that the U.S. economy will contract. The Fed doesn’t directly control fixed mortgage rates — the most pertinent number is the 10-year Treasury yield, and it has bounced around in recent weeks. Even so, high inflation all but forces the Fed to act aggressively, and it sets the tone for rates overall. When consumer spending runs too hot there is a need to slow things down. The bad news is if the slowdown spirals out of control there can be a recession, leading to business closures, bankruptcies, and warehouses having to liquidate inventory to liquidation buyers, overstock buyers and closeout wholesalers.
Mortgage rates have been on a wild ride as of late, briefly reaching 6 percent. The rate chart could continue to look choppy — the Fed’s stance against inflation also could lead to a recession, and that could cause mortgage rates to retreat. The Fed meeting is more likely to bring about lower mortgage rates than higher mortgage rates as long-term rates respond to growing recession worries,” says Greg McBride, Bankrate’s chief financial analyst. A year ago, the benchmark 30-year fixed-rate mortgage was 3.04 percent. Four weeks ago, the rate was 5.91 percent. The 30-year fixed-rate average for this week is 2.76 percentage points higher than the 52-week low of 3 percent. The 30-year fixed mortgages in this week’s survey had an average total of 0.47 discount and origination points. Over the past 52 weeks, the 30-year fixed has averaged 4.07 percent. This uncertainty is not good for consumer spending, and it puts wholesale closeout buyers in a tough spot coming into the busy shopping season. Hopefully, the consumer will spend heavily at Christmas time, but if they don't we can see a buildup in excess inventory and a need for companies that specialize in liquidation sales and overstock sales. Selling overstock inventory is more common during recessions and inflationary times. Amazon sellers might be forced to shut down FBA seller accounts if sales are slow and long term storage fees are too high. This is good for wholesale liquidators who will have more opportunities to buy closeouts and liquidate merchandise at bargain basement prices.
Mortgage rates have been climbing steadily since the beginning of 2022. Although rates reached historic lows during the COVID-19 pandemic, they've now reached their highest levels since 2008 and show no signs of slowing down. Interest rates are increasing in response to surging inflation, which is at its highest point in four decades, as well as the Federal Reserve raising rates multiple times this year, for the first time since 2018. The Fed raised interest rates by 0.75 percentage points in June, the largest rate hike since 1994. consumer spending is slowing down and discount stores are recording slower sales and less traffic in the stores. This will trickle down to wholesalers who will begin to see a buildup in excess inventory and dead stock. Warehouses will begin to fill with slow moving inventory and they will want to get rid of dead merchandise to make room for new products coming in.
Rising rates have significant implications for home buyers, especially as home prices remain sky-high. Higher mortgage rates, even by a few tenths of a percentage point, can add tens of thousands of dollars over the life of your loan. Climbing rates shouldn't discourage you from buying a home, however, it may leave less money for spending on other things like overstock merchandise deals, closeouts, and excess inventory promotions below regular retail prices.
Even though rates have escalated, it's still a great time to lock in a mortgage rate, since rates are expected to keep going up. In a rising rate environment, the sooner you act, the better, because it can help you secure a lower rate. "Mortgage rates have bounded more than 2 percentage points higher since the end of last year, one the largest and fastest increases ever seen," said Greg McBride, chief financial analyst at CNET's sister site Bankrate. "With inflation at a 40-year high and not yet showing any signs of easing, the upward trend in rates continues."
Merchandise USA is a closeout liquidator specializing in liquidating merchandise and selling overstock inventory. We buy closeout housewares, overstock toys and sporting goods, and excess lawn and garden inventory from importers and distributors. If you are shutting down your 3PL warehouse or going out of business and selling all inventory we are a buyer. To visit our website online you can Google terms like closeouts, overstock buyers, liquidation buyer, liquidators and sell surplus inventory.