Economy

Cupcake Owner to customer who are viewing the cup cakes on the display : "That'd be $5 for the cupcake."

Employees to Cupcake Owner : "Boss! We demand a raise!!"

Cupcake Owner to customer who have eaten the cupcakes : "Correction: It's now $30."

Customer :"!"

Home prices set to drop as interest rates rise

No surprise that the European Central Bank and the Bank of England are keeping interest rate low, as the region grapples with debt.

   And signs are pointing to a rate increase here, as the US prepares to end quantitative easing and China tightens credit.

   The result: less money available.

   For home owners and those shopping for property, that means paying more for their mortgages.

Fluctuates

   Home loans are pegged to a floating rate, which fluctuates.

   As interest rates rise by, say 1 per cent, current home owners would have to fork out more cash to cover their monthly mortgages.

   An increase in interest rate means monthly mortgage installments will rise and this may dent demand.

   Less demand (also pulls) property prices downwards, as home buyers and investors are expected to become more discerning in their purchases.

   Home buyers and investors already have to fork out more cash, due to the increase in additional buyer's stamp duty, lower loan-to-value ratios and higher down payment.

   Private home sales volume has also been down since March, with property agents saying the average wait for a sale can take up to six months compared to a maximum of two months a year ago.

   The rental market is also expected to slow down, with a huge supply of completed homes vying for a limited pool of tenants.

What lies ahead

US: Things improving?

• The Federal Reserve has hinted that quantitative easing (QE) is being tapered off.

• Less money is printed and circulated around the world.

Europe's austerity drive

• Deep spending cuts and political turmoil as the region grapples with debt crisis.

• Consumer confidence is likely to plunge further.

• Minor knock-on effects in Asia.

China's slowdown

• Beijing's move to tighten credit: Harder for people to borrow money and buy goods and services.

• Trade shrinks and investments slow down.

• Chinese investors less keen to snap up new property abroad.

What less money means:

Rising interest rates here

• Less money in the system means banks are more careful about who they lend to.

• Borrowing (like getting a home loan) becomes more expensive.

• Since home loans here are pegged to a floating rate, a rate increase translates to a significant rise in the monthly mortgage repayment.

• Current homeowners have to come up with more cash to finance their mortgage.

• Potential buyers are less likely to take loans for big-ticket items like property.

Rentals down

• Limited pool of tenants as the Congress tightens foreign expat numbers.

• So tenants can pick and choose from what's available - and bargain for lower prices.