Predicting the property market's performance with economic indicators

Wouldn’t it be great if you could predict future real estate prices? Or if you managed to sell your assets right before a stock market crash?
Truth be told, a market crash does not happen overnight. It is actually a build-up of many factors, such as demand and supply, government measures and much more. It happens over months instead of hours. Being an illiquid asset, there is ample enough time to study and predict the rise and fall of prices.
For economic indicators to have predictive value for investors, it needs to be up to date, forward-looking and must take into account future values and the time value of money. This process is called discounting, deriving the present value of a payment that is to be received in the future. Given the time value of money, a dollar is worth more today than it would be worth tomorrow.
In this article, we will discuss how mortgage interest rates and government policies indicates the property market performance.

Mortgage interest rates

So why are mortgage interest rates an indicator?
Properties are a big-ticket item and they are expensive, especially in a first world country like Singapore. Therefore, consumers are predisposed towards taking home loans from banks or financial institutions.
How do mortgage interest rate influence the residential market?
Essentially, the up and downward movement of interest rates affects a consumer’s decision on whether or not to purchase a home, thus affecting the level of demand for housing.
Demand is affected in two ways: in its direction (increase or decrease) and magnitude (degree of change).
In a low mortgage interest rate environment, it becomes cheaper for us to borrow and to purchase a home.
Logically, there is a lower monthly repayment, and this reduces the burden of servicing the mortgage. Potential home buyers would then want to secure a loan when rates are low.
Assuming that housing supply is inelastic, in the short run, prices of properties will rise due to an increase in demand.
Banks may offer attractive rates for the first 2-3 years with additional perks such as no lock-in...