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Tuesday, February 19, 2019

Philippine House Prices are Still Accelerating! - As of December 31, 2018

Despite the gloomy global macroeconomic environment for emerging markets, Philippine House Prices continued to accelerate in the fourth quarter of 2018. The Philippine House Price Index (culled from data from Colliers International Philippines on Luxury 3BR Condominiums in the Makati CBD), accelerated by 5.00% alone in the fourth quarter of 2018. This is the fastest quarter-on-quarter growth since the second quarter of 2013, when prices rose by 6.92% over the previous quarter. The index now stands at 278.21, almost three times more than its base of 100.00 since the fourth quarter of 2004. The index is also 97 percentage points higher than its inflation adjusted basis.



Source: Colliers International Philippines

Tuesday, January 15, 2019

How low can Canadian Property Prices Go?

Eight months ago, we speculated that the Canadian Property Market was due for a bust. Today, that reality has come ever closer. So far, as of the third quarter of 2018, property prices have declined by 4.24% since they peaked in the second quarter of 2017.




Property Prices have also leapfrogged incomes so much that the relationship of Property Prices to Income is way out of whack. On average, the ratio of Real House Prices to Real Personal Disposable Income (data from the International House Price Database maintained by the Dallas Federal Reserve) since 1975 has been 95% of Real Personal Disposable Income with a Standard Deviation of 19%. As of the 3rd qtr of 2018, Real House Prices now stand at 142% of Real Personal Disposable Income. This represents more than 2 Standard Deviations above the historical mean. Assuming a normal distribution, there is only a 1.3% probability that the property market could go even higher. If Real House Prices revert to the mean, as they often do, Canada could be in for a property decline of 33.58% from current levels. But markets always tend to overshoot to the downside. If the real estate boom of the past two decades caused prices to surge way past anything that reflect fundamentals, a panic could set in on the downside and cause prices to drop to levels not seen in a generation.



How Overheated are the Real Estate Markets of Canada, Australia, and New Zealand?

Monday, January 14, 2019

How low can Australian Property Prices Go? Let Me Count the Ways

Almost three years ago, we speculated that the Australian Property Market was due for a bust. Today, that reality has come ever closer. So far, property prices have declined for all three quarters of 2018, peaking in the fourth quarter of 2017. But the decline is marginal - only a shade less than 3% (2.86% to be exact) and may represent a slowdown than an actual property bust.


Australian Property Prices are still way above their their inflation adjusted basis since year-end 2002. If property prices were to drop to their inflation adjusted levels, they would drop by an astounding 42.29%!.

Property Prices have also leapfrogged incomes so much that the relationship of Property Prices to Income is way out of whack. On average, the ratio of Real House Prices to Real Personal Disposable Income (data from the International House Price Database maintained by the Dallas Federal Reserve) since 1975 has been 80% of Real Personal Disposable Income with a Standard Deviation of 21.91%. As of the 2nd qtr of 2018, Real House Prices now stand at 128.48% of Real Personal Disposable Income. This represents more than 2 Standard Deviations above the historical mean. Assuming a normal distribution, there is only a 1.4% probability that the property market could go even higher. If Real House Prices revert to the mean, as they often do, Australia could be in for a property decline of 37.39% from current levels.



Both calculations, inflation-adjusted basis or by income-adjusted basis, predict a severe decline (more than 30%). But markets always tend to overshoot to the downside. If the real estate boom of the past two decades caused prices to surge way past anything that reflect fundamentals, a panic could set in on the downside and cause prices to drop to levels not seen in a generation.

How Overheated are the Real Estate Markets of Canada, Australia, and New Zealand?




Friday, December 7, 2018

Which US State Has the Most Livable Minimum Wage? The Answers May Surprise You.

People in the US have often lamented how the cost of living has outstripped the federal minimum wage, which has remained stuck at $7.25 per hour since July 24, 2009.




Wages have severely  lagged labor productivity by a wide margin. Had wages kept up with productivity growth, wages would be closer to $33 an hour than the current $7.25 per hour. Much of the gains in productivity have gone to capital rather than labor, resulting in increasing income inequality.



MIT has a neat Living Wage Calculator to help people estimate the cost of living in a person's community or region. Based on their calculations, the weighted average (given the Civilian Non-Institutional Population in each state) living wage for the entire US is $12.08 per hour. This is almost 40% higher than the weighted average minimum wage of $8.71 per hour for the entire USA and more than twice the national poverty wage of just $5.71 per hour.


MIT 2017 Living Wage
By State
In US$ per Hour




State MIT Living Wage Federal Poverty Wage Federal Minimum Wage
Alabama $11.14 $5.80 $7.25
Alaska $12.48 $7.24 $9.84
Arizona $11.22 $5.80 $10.50
Arkansas $10.38 $5.80 $8.50
California $14.01 $5.00 $11.00
Colorado $12.47 $5.80 $10.20
Connecticut $12.88 $5.80 $10.10
Delaware $12.44 $5.80 $8.25
District of Columbia $17.11 $5.80 $12.50
Florida $11.75 $5.80 $8.25
Georgia $11.93 $5.80 $7.25
Hawaii $15.39 $6.66 $10.10
Idaho $10.64 $5.80 $7.25
Illinois $12.50 $5.80 $8.25
Indiana $10.70 $5.80 $7.25
Iowa $10.53 $5.80 $7.25
Kansas $10.69 $5.80 $7.25
Kentucky $10.49 $5.80 $7.25
Louisiana $10.91 $5.80 $7.25
Maine $11.60 $5.80 $10.00
Maryland $14.62 $5.80 $9.25
Massachusetts $13.39 $5.80 $11.00
Michigan $10.87 $5.80 $9.25
Minnesota $11.53 $5.80 $9.65
Mississipi $10.86 $5.80 $7.25
Missouri $10.76 $5.80 $7.85
Montana $10.95 $5.80 $8.30
Nebraska $10.60 $5.80 $9.00
Nevada $10.94 $5.80 $8.25
New Hampshire $12.01 $5.80 $7.25
New Jersey $13.72 $5.80 $8.60
New Mexico $10.98 $5.80 $7.50
New York $14.42 $5.80 $10.40
North Carolina $11.36 $5.80 $7.25
North Dakota $10.89 $5.80 $7.25
Ohio $10.47 $5.80 $8.30
Oklahoma $10.52 $5.80 $7.25
Oregon $12.48 $5.80 $10.25
Pennsylvania $11.11 $5.80 $7.25
Rhode Island $12.10 $5.80 $10.10
South Carolina $11.17 $5.80 $7.25
South Dakota $10.03 $5.80 $8.85
Tennessee $10.44 $5.80 $7.25
Texas $11.03 $5.80 $7.25
Utah $11.22 $5.80 $7.25
Vermont $12.32 $5.80 $10.50
Virginia $13.86 $5.80 $7.25
Washington $12.28 $5.80 $11.50
West Virginia $10.68 $5.80 $8.75
Wisconsin $11.03 $5.80 $7.25
Wyoming $10.63 $5.80 $7.25
National USA $12.08 $5.71 $8.71


Based on these figures, the gap between the minimum wage and living wage for each state is the highest in Virginia, where the minimum wage of $7.25 per hour is just 52% of a statewide living wage of $13.86 per hour. The state of Washington has the most livable minimum wage. Its statewide minimum wage of $11.50 per hour is more than 90% of its computed living wage of $12.28 per hour.

State Minimum Wage/Living Wage
Washington 93.65%
Arizona 93.58%
South Dakota 88.24%
Maine 86.21%
Vermont 85.23%
Michigan 85.10%
Nebraska 84.91%
Minnesota 83.69%
Rhode Island 83.47%
Massachusetts 82.15%
Oregon 82.13%
West Virginia 81.93%
Arkansas 81.89%
Colorado 81.80%
Ohio 79.27%
Alaska 78.85%
California 78.52%
Connecticut 78.42%
Montana 75.80%
Nevada 75.41%
District of Columbia 73.06%
Missouri 72.96%
New York 72.12%
Florida 70.21%
Tennessee 69.44%
Kentucky 69.11%
Oklahoma 68.92%
Iowa 68.85%
New Mexico 68.31%
Wyoming 68.20%
Idaho 68.14%
Kansas 67.82%
Indiana 67.76%
Mississipi 66.76%
North Dakota 66.57%
Louisiana 66.45%
Delaware 66.32%
Illinois 66.00%
Texas 65.73%
Wisconsin 65.73%
Hawaii 65.63%
Pennsylvania 65.26%
Alabama 65.08%
South Carolina 64.91%
Utah 64.62%
North Carolina 63.82%
Maryland 63.27%
New Jersey 62.68%
Georgia 60.77%
New Hampshire 60.37%
Virginia 52.31%

Source: MIT Living Wage Calculator

What Is the National Living Wage?

Wednesday, December 5, 2018

Maybe Filipinos Are Getting Richer, More Filipinos Are Studying in the USA as of 2017-2018

Maybe Filipinos are getting richer. More of them are studying in the USA. After almost eight years of declining enrollment, the number of Filipinos studying in the USA has started trending up. At 3,225 students, enrollment at US educational institutions is almost 12% higher than the bottom of 2015, when 2,886 Filipinos enrolled. This is still almost 24% below the 2008 peak of 4,225.


We are finally joining our ASEAN neighbors, particularly Vietnam, whose students are enrolling in US universities in ever greater numbers.


If Filipinos Are Getting Richer, Why Are There Fewer Filipino Students in the USA Every Year? - Updated as of 2016-2017

Friday, November 30, 2018

Philippine Public Construction as a % of GDP is at a 20 Year High! - As of September 30, 2018

Philippine Public Construction is way above its historical trend of 3.40% of GDP. As of the third quarter of 2018, Philippine Public Construction Gross Value as a percentage of GDP hit 4.15%. This is the highest ratio since 1998.

This boost in public construction, particularly in infrastructure, has led to the first cumulative overhang since 2003. 


As long as infrastructure spending is not done in white elephants, such as China's famous bridges to nowhere, this bodes well for the Philippine economy because the fiscal multiplier from such projects is very significant and will increase efficiencies in the entire Philippine economy.

Wednesday, October 3, 2018

Great Recession vs. Great Depression: The GDP Growth Rate Is Finally Speeding Up!

Two months ago, we lamented on how the economic recovery of the Great Recession had become officially much slower than that of the Great Depression. Last week, the Bureau of Economic Analysis released an advance estimate of the GDP growth rate for the second quarter of 2018.  The good news? It's finally at 4.2%, a rate not seen since the third quarter of 2014.



On a Nominal GDP Per Capita basis, the economic recovery of the Great Recession is still way ahead of the Great Depression. The dip in nominal GDP per capita was really shallow - less than 3 percentage points. The drop in GDP per capita during the Great Depression was a catastrophic 47%.

At this point in the economic recovery, some eleven years after the Great Recession started, we are almost 30% better than where we were. Whereas during the Great Depression, nominal GDP per capita remained almost 10% below the depression's inception.



In terms of real GDP per capita, people were made whole only on 2013 of the Great Recession. Five years later, we are only 9% better than where we were in 2013.  During the Great Depression, people were only made whole, in terms of Real GDP Per Capita, only on year 10 of the Great Depression. But the recovery accelerated even faster. Just one year later, people were 8% better. That trend will accelerate in year 12 - by then, they will be almost 18% better than they were just one year earlier. Now where will we be one year from now? We don't know. So far, we are faring better than people of  the Great Depression, but just barely.