The confluence of circumstances that created this rapid appreciation of home prices has attracted the attention of non-owner households, bringing more of them into the market. Obviously, the fundamentals of supply and demand, with price as the equilibrating force, are well at work in the housing market. Measuring housing affordability by the ratio of mortgage payments to income, home sales naturally increase as the cost of buying a home becomes "cheaper", and conversely, sales fall when the cost of buying a home becomes too expensive. For instance, if a household with the median income wanted to purchase the median priced home in 1982 with a 20 percent down payment, they would have to commit as much as 62 percent of their gross income to make the monthly mortgage payments. In sharp contrast, lenders require that mortgage payments do not exceed a level of between 28 to 30 percent of gross annual household income. The gap between affordable payments and available housing was quite large (Trimbath and Montoya, 2002, p. 2).
Literature Review.
Rapid inflation in house prices, particularly over the past five years, is now a global phenomenon. The Economist (2003) launched its global house price indicators in early 2003. Over the past five years, real house prices have increased at average annual rates of 8%-12% in Australia, UK, Ireland, the Netherlands and Spain. In these six economies, the ratio of house prices to average earnings is at record levels and much higher than the average level over the period 1975 to 2002. The Economist concludes that house prices continued to climb despite a stock market crash, global economic slowdown and the Iraq war, and have fueled the belief that they can only keep rising. Indeed in many countries, investors bruised by poor stock market performance have invested heavily in residential property. .
In terms of further work on the global perspective, Crooks and Despeignes (2002) chart the growth of house prices in Europe, America and parts of Asia, noting increasing rates not seen since the 1980s.
