How does increased interest rates influence household expenditure?
Ps. Please provide a source if possible. Thanks.
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This is a very general question and cannot be answered without more information. It all depends on the household, and which interest rate increased.
If the household has an adjustable rate mortgage and the rate increased, the larger mortgage payments would have an adverse effect on other household spending. If the household is an investor in fixed interest instruments, an increase in the rate will cause a decrease in the market value of the instruments, but will not affect the household except if the investments have to be sold. If this household has idle cash, it can increase its income by buying bonds at the higher interest rate.
Is it interest on credit cards? If the household has a lot of debt on the card, the monthly payments will be higher and spending on other items will have to decrease.
If you are talking about the entire economy, that is an entirely different question, and again depends on many factors that we don’t know.
How do we begin to guess what the housing market will do? No offense, but everybody was wrong about it just a fewyears ago, so why do we think it will be better in the future? Just because housing is better priced and rates are lower? Unemployment is still a serious problem. And, the debt the US seems to accumulate every day. I personally think waiting is the best option right now.
Nice to see you blogging about this good topic.