The boom and bust of real estate cycles seem to be tamed. That's because post GFC, governments realise how much havoc a burst property bubble can cause. Unlike stocks, properties are often the biggest ticket item for any household. A typical property usually cost around 2x of an American household's annual income, and as much as 18x a Chinese household's annual income. Most buyers need mortgages to buy a home. This means that banks' mortgage policy is a big determinant of house prices.
Let me state the biggest factors of a housing cycle:
1. Availability of mortgages. The TDSR in Singapore and Mortgage Market Review (MMR) in the UK have successfully curbed house price inflation.
2. Borrowing costs. If rates rise beyond rental yield, prices tend to stop growing as it will be cheaper to rent than to buy.
3. Employment creation. Jobs growth spur population growth, which in turn spurs household formation.
4. Supply factors. How liberal are local governments in giving permits?
In London, the MMR has caused asking prices to be reduced. MMR currently restricts loans that are > 4.5x of a household's income. If a typical London household earns around GBP50k, most banks will not be comfortable lending beyond GBP225k. This means most of zones 1 to 3 are priced beyond the reach of most Londoners.
As a result, London's house price appreciation will follow what Singapore went through between 2011 - 2013, slow growth. House price appreciation will follow wage rise since one will find it difficult to borrow > 4.5 x of a household's income.
Let me state the biggest factors of a housing cycle:
1. Availability of mortgages. The TDSR in Singapore and Mortgage Market Review (MMR) in the UK have successfully curbed house price inflation.
2. Borrowing costs. If rates rise beyond rental yield, prices tend to stop growing as it will be cheaper to rent than to buy.
3. Employment creation. Jobs growth spur population growth, which in turn spurs household formation.
4. Supply factors. How liberal are local governments in giving permits?
In London, the MMR has caused asking prices to be reduced. MMR currently restricts loans that are > 4.5x of a household's income. If a typical London household earns around GBP50k, most banks will not be comfortable lending beyond GBP225k. This means most of zones 1 to 3 are priced beyond the reach of most Londoners.
As a result, London's house price appreciation will follow what Singapore went through between 2011 - 2013, slow growth. House price appreciation will follow wage rise since one will find it difficult to borrow > 4.5 x of a household's income.
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