Hacker Newsnew | past | comments | ask | show | jobs | submitlogin

Purchase prices of London properties rose much faster than rent. That's coming to an end now, there's a finite supply of people who can or will throw silly money at it. It doesn't mean that prices will come down, but it does mean purchase prices won't grow so fast and relentless as it did the past two decades. Rents may rise, but mainly to close the significant gap between rents and mortgage payments and that will only happen as fast as people are willing to pay.



It seems to me that house prices can be approximated as a function of rents, interest rates (determining required return on owning a house), and anticipated growth in house prices (which again can be decomposed into growth in rents, reduction in interest rates and 'irrational' growth).

Rental yields appear to be around 3.5% at the moment, which suggests to me that a good deal of anticipated growth is priced in. But where can that growth come from? Rents are a function of incomes and are unlikely to outpace inflation. Interest rates seem to be more likely to go up than down. So it seems that house prices are unlikely to rise, and once that is realized by the market, prices may even come down as participants stop anticipating growth just because "London house prices always go up".

House prices going up faster than rents in recent decades can probably be explained by interest rates being in a downward trend over the same decades. Now we seem to be in at least somewhat of a bubble due to irrational future growth expectations.




Consider applying for YC's Fall 2025 batch! Applications are open till Aug 4

Guidelines | FAQ | Lists | API | Security | Legal | Apply to YC | Contact

Search: