In recent months, we've spent a lot of time writing about the various housing bubbles all over the world with an emphasis on Vancouver, Sydney and Melbourne (see here, here and here). Now, courtesy of the "13th Annual Demographia International Housing Affordability Survey", we have a comprehensive comparison of just how bubbly some of the world's least affordable housing markets have become.
The study, which analyzed 406 metropolitan housing markets around the world, compared affordability on the basis of a ratio of median homes prices to median gross incomes with anything over 5x considered "Severely Unaffordable." And while there are obvious flaws in the methodology, including the fact that income isn't adjusted for local taxing policies and building quality, the study at least provides a basis for comparison.
Not surprisingly, Hong Kong and Sydney maintained their "lead" as the least affordable housing markets in 2016 with Vancouver moving into the number 3 spot with home prices there increasing by the equivalent of a full year's median income in just a single year.
Meanwhile, of the 94 "severely unaffordable markets" in the world, nearly 40% of them were located in the U.S. and another one-third were in Australia.
There are 26 severely unaffordable major housing markets in 2016. Again, Hong Kong is the least affordable, with a Median Multiple of 18.1, down from 19.0 last year. Sydney is again second, at 12.2 (the same Median Multiple as last year). Vancouver is third least affordable, at 11.8, where house prices rose the equivalent of a full year’s household income in only a year. Auckland is fourth least affordable, at 10.0 and San Jose has a Median Multiple of 9.6.
The least affordable 10 also includes Melbourne (9.5), Honolulu (9.4), Los Angeles (9.3), where house prices rose the equivalent of 14 months in household income in only 12 months. San Francisco has a Median Multiple of 9.2 and Bournemouth & Dorsett is 8.9.
There are 94 severely unaffordable markets, with 36 (of 262) in the United States, 33 (of 54) in Australia, 11 (of 33) in the United Kingdom, 7 (of 40) in Canada, 6 (of 8) in New Zealand and the one market in China. Singapore, Japan and Ireland have no severely unaffordable housing markets.
The least affordable among the smaller markets is Santa Cruz (CA) in the United States, with a Median Multiple of 11.6.
Of course, for anyone who still doubts the source of the 2006/2007 U.S. housing bubble, the relationship between median incomes and housing prices remained fairly constant in the U.S. right up until the Fed decided to utilize near-zero interest rates to manage stock prices shortly after the 2000 tech bubble burst...
...a mistake that Yellen & Co. seems to be on a path to repeating.