In Australia all the 5 major housing markets are deemed “severely unaffordable.” In the USA 13 out of 55 meet that criterion, in Canada 2 of the 6 and, in the UK, 7 of the 21. The most outrageously priced market is, once again, Hong Kong, with a median multiple of 20.9 (19.4 last year). Vancouver lands in 2nd place with a multiple of 12.6 (12.6 last year also) and Sydney comes in 3rd at 11.7 (12.9 last year). For those interested the next 3 places are filled by Melbourne, San Jose (Cal) and Los Angeles with multiples of 9.7, 9.4 and 9.2 respectively.
You don’t need a plethora of statistics to know when something is out of whack. Anyone participating in any of the above markets or any others in the “severely unaffordable” bracket knows from experience that there is no way into the market for a young worker on a ‘normalish’ salary unless the Bank of Mum and Dad comes to the party or the lottery comes good. By contrast, the generation of your scribe (post-war baby boomers) enjoyed median multiples of, typically, around 3 whilst deposits of 25% or more of the purchase price could easily be managed after a few short years of work. The Bank of Mum and Dad was non-existent “back in the day.”
We can’t forecast whether multiples will return to 3 in the major cities but we are prepared to wager that the 9’s and above will end and cause negative equity stress in a large number of cases. In Sydney the multiple is already falling as house prices are down comfortably over 10% since the peak in the September quarter of 2017. They have a way to go.
Where does one travel to find a multiple of 3 or less? The US has several examples – Pittsburgh and Rochester (2.6); Oklahoma City (2.7); Buffalo, Cincinnati, Cleveland, and St. Louis (all at 2.8); Indianapolis (2.9) and Detroit (3.0).
Financial stress relating to housing was the catalyst for the global financial crisis commencing in 2007-8. It would not be smart if we allowed a repeat performance.
The partial shutdown of the US Federal government has been much in the news over the past month but it easy to forget that this is relatively commonplace in US political history. It now appears to have ended but it holds the dubious distinction of being the longest shutdown in history and will undoubtedly shave a point or two off US growth in December and January. The cost to the economy is probably more than the cost of the controversial wall. It seems extraordinary that the world’s largest and richest economy can spend a month or more where hundreds of thousands of government employees (and contractors) are furloughed and a variety of Federal services are either suspended or restricted.
In other news we have witnessed the political and economic situation in Venezuela lurch from bad to disastrous. The economy is in free-fall, the rate of inflation is uncountable, crime and corruption is rampant, unemployment has rocketed and the government’s leadership is wobbling (to say the least). And this, a country with masses, and we do mean masses, of proved oil reserves – probably the largest in the world. It is hard to conceive how such a significant natural advantage can be so abused and misused. The US has now imposed billions of dollars of sanctions on the State-owned oil company in an attempt to force the current President, Nicolás Maduro, out of office. Things could get even worse.