Real Estate sector
Interest rate change will influence operating of the real estate company and consumers’ demand for real estate.
Supply
The change of interest rate firstly affects the supply of homes, which are products produced by the real estate company. From the perspective of the development and construction cost of real estate, the bank loans account for a big part of the monetary source of investment in starting a new real estate project. The change of interest rate directly influenced the bank loans, which will increase or decrease real estate company’s investment cost, influencing the house prices.
High interest rate will make it more difficult for real estate developers to get bank loans and they have to afford high interest rate, which increase their investment cost. In order to compensate for the loss and get enough return, developers tend to raise the price of real instate, transferring the increasing cost to buyers.
In contrast, the low interest rate will drop developers investment cost and they may likely to decline the price of real estate.
Demand
From perspective of the demand of real estate market, most buyers have to take the mortgage loans, which account for a large proportion of their purchase fund, to purchase commercial housing. And interest rate also directly affects the buyers’ interest burden. And at the same time, buyers not only have to handle the interest burden from bank, but also have to afford the transferred-investment-cost from the developers, affording the most direct and final impact of interest rate changes.
So the consumers’ demand of the real estate is closely related to the change of interest. High interest rates cost more in the loans and make it more expensive for investors to buy a home. They are more likely to save money in bank or invest in other ways. The demand for the real estate drop and will turn down the real estate market.
In contrast, when interest rate drops, buyers are more likely borrow money from the bank to invest in real estate, stimulating demand in real estate sector.
Insurance sector
Interest rate can affect profitability of the insurance sector and consumer’s demand for insurance.
The profitability of the insurance sector is closely related to the interest rate. Insurance companies make money not only by receiving premium from customers, but also investing in interest-rate-sensitive assets, such as bonds. So the interest rate change can affect the value of insurance company’s assets and liabilities. And return of the insurance products and insurance premium also influence by the change of interest rate, deciding the insurance company’s sales.
High interest rate increases the value of the investment that insurance company has invested and the insurance premium it has saved in the bank. Their insurance products, such as dividend insurance products, will be more attractive for its high interest rate, resulting higher sales.
In contrast, lower interest rate will lead to lower investment income and make it hard for insurance company to attract more customers.
Insurance premium and demand for the insurance
Consumers make decision of buying insurance products depend on the amount of insurance premium, the return they can get from the insurance, and the value of money they have, which are all influence by the change of interest rate.
Under normal circumstances, the demand for the insurance is in inverse proportional to interest rate and premium. If the interest rate is high, the insurance company can earn more from the investment and will turn down the insurance premium to attract more consumers, which are also more willing to buy insurance products for the high interest rate and low premium. If the interest rate drops, insurance company will increase the insurance premium and customers’ demand also will decrease.
On the other hand, some types of insurance, such as compulsory insurance and savings bank life insurance, will not influenced by the change of interest rate and the demand for them keeps in a stable level. When the interest rate decreases, if the settlement rate of savings bank life insurance is higher than the interest rate, it will be more attractive to consumers.
