9th Annual Demographia International Housing Affordability Survey (2012: 3rd Quarter)

I refer my readers and followers to this report which just serves to reinforce my assertions, made since 2004 that the housing market here is and remains overheated and overpriced.  I wish to thank Demographia and in particular, Wendell Cox and Hugh Pavletich for their permission to quote from the Survey.I’m not going to “cherry pick” from the Survey to support my argument as the main standalone fact is that we are overpriced, overheated and unaffordable.  Greed has got us here and “the market” will drag us back to reality.  We will, hopefully, return to a time when a house was bought as a home for ourselves and family, not a speculative investment or some kind of bricks and mortar credit card with a low interest rate and ridiculously long repayment schedule.

From the Survey…”The Demographia International Housing Affordability Survey employs the “Median Multiple” (median house price divided by gross before tax annual median household income) to rate housing affordability.”

Now you know what I think of statistics, how they are used, misused and wrongly quoted, but for the sake of clarity, I’ll accept this methodology as it’s fairly straight forward and effectively demonstrates the basic tenet – it’s all too expensive!

The Survey’s Rating Median Multiple

Severely Unaffordable 5.1 & Over

Seriously Unaffordable 4.1 to 5.0

Moderately Unaffordable 3.1 to 4.0

Affordable 3.0 & Under

From the Survey…”More elaborate indicators, which mix housing affordability and mortgage affordability can mask the structural elements of house pricing are often not well understood outside the financial sector. Moreover, they provide only a “snapshot,” because interest rates can vary over the term of a mortgage; however the price paid for the house does not. The reality is that, if house prices double or triple relative to incomes, as has occurred in many severely unaffordable markets, the sum total of mortgage payments will also rise substantially.”

When I built a wee family home at a time when my annual salary was $25,000.00, the land cost me $30,000.00 and the house another $45,000.00 to complete.  Multiple? About 3.   Next house was larger with 5 bedrooms, 3 bathrooms and luxury finishes – even that was only a multiple of about 3.8.

From the Survey…”Historically, the Median Multiple has been remarkably similar in Australia, Canada, Ireland, New Zealand, the United Kingdom and the United States, with median house prices having generally been from 2.0 to 3.0 times median household incomes (historical data has not been identified for Hong Kong), with 3.0 being the outer bound of affordability. This affordability relationship continues in many housing markets of the United States and Canada. However, the Median Multiple has escalated sharply in the past decade in Australia, Ireland, New Zealand, and the United Kingdom and in some markets of Canada and the United States. In every market

where there has been a sustained and significant increase in the Median Multiple, there has also been the implementation of more restrictive land use policy, which is referred to in this survey as “urban containment” (there are also additional labels, such as “smart growth,” “urban consolidation,” “compact city policy,” “growth management,” and “densification policy”).”

And, may I say, very well put…”The Demographia International Housing Affordability Survey is produced to contrast the deterioration in housing affordability in some metropolitan markets with the preservation of affordability in other metropolitan areas.

It is dedicated to younger generations who a have right to expect they will live as well or better than their parents, but may not, in large part due to the higher cost of housing that is driven by exorbitant increases in house prices relative to incomes.”

Australia remains in the “Severely Unaffordable 5.1 & Over” range at 6.5.

Paraphrased from the Survey…” The most unaffordable major market was Hong Kong, with a Median Multiple of 13.5.  Vancouver ranked second most unaffordable, at a Median Multiple of 9.5.  Sydney was the third most unaffordable, at 8.3.  San Jose had a Median Multiple of 7.9, San Francisco and London 7.8 and Melbourne at 7.5.”

The Survey is 60 pages but if you want to take a peek, click here DEMOGRAPHIA SURVEY

I rest my case, again.

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