Under Obama, Houses Became Even More Unaffordable

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Where are the Imbalances in Philippine Construction?

In our last post, Construction Gross Value as a Percentage of GDP Is at a 25 Year High! - Updated as of 4th Qtr. 2016, we came up with a chart showing this:




As of year-end 2016, this ratio stood at 12.22%, a 25-year high since 1990 and significantly higher than the average construction gross value ratio of 9.65% of GDP throughout this period. Now where are the imbalances taking place?

You'd be surprised by the results. No, not in Metro Manila or anywhere near there. As of the latest available data in 2015, Western Visayas tops the list at 23.86%, almost double the national average of 11.55%. So does Bicol, of all places. Why is that? We don't know. But we aim to find out soon enough.

Source: Philippine Statistics Authority

Construction Gross Value as a Percentage of GDP Is at a 25 Year High! - Updated as of 4th Qtr. 2016

Last May 4, 2015, we noted that Construction Gross Value (Construction GV) at 11.21% as of the year-end 2014 was already well above its historical average of 9.65% of GDP since 1990.  This ratio has run at an above average rate since 2009 and has already eaten away at the "cumulative underhang" or underinvestment in construction that has taken place since 2004, when the excessive investment in construction that took place in the mid to late 1990's was being absorbed.

As of the 4th Qtr of 2016, Construction GV as a percentage of GDP now stands higher at 12.22% of GDP - an all-time high for the past 25 years.  But the real story is that Cumulative Construction GV has gone well above equilibrium and now stands at 2.9% above equilibrium, a rise of 2.6% in just one year.  Given all the planned new projects that are already at the execution stage, the momentum in Construction Investment will continue.

US House Prices Have Climbed Upwards But So Have Incomes

In our last post, "The US Housing Bubble Has Been Fully Reflated," we discussed how US House Prices have entered bubblicious territory because because median US House Prices stood at 5.63 times median household income - two standard deviations away from the long-term average of 4.24 times median household income.  Based on what I remember of my statistics classes, the probability of this taking place is exceptionally low: only 2.5%. Since then, house prices have continued to increase:

In 2015, house prices, as evidenced by the S&P/Case-Shiller 20-City Composite Index, increased by 5.03%, but so have incomes. Real Median Household Incomes increased even faster in 2015, by 5.33% to reach $56,516 at the end of 2015:

As a result, median new home prices are now only 5.11 times median household incomes in 2015, slightly less than two standard deviations above the long-term average of 4.24 times. Prices are still elevated but no longer in true bubble territory.

Source: St. Louis FRED