Is housing sensitive to the rate cycle?
The cost of funds is something which almost directly impacts the end user and thus rates become a key factor for this segment.
A drop in the policy rates generally spurs demand in housing and auto industries since demand in these industries are dependant to a large extent on the credit available. Consumers buying houses or cars on loan will be fairly sensitive to interest rates on these loans.
However, the housing industry and home loans in particular are more sensitive to changes in interest rates as compared to the auto industry.
Before we get into the financial aspects of home loans and auto loans, let us first get a little perspective on both. Home loans are loans provided by financiers (banks and housing finance companies) to individuals who are generally purchasing residential property either a newly constructed property or an existing property through a resale purchase transaction. The term of a home loan can be up to 25 or even 30 years. Auto loans, in comparison, can be given for up to five or seven years.
If we cut across social strata, a person who is purchasing an automobile is not
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