Houses in Hong Kong, Australia and New Zeland are severely unaffordable

According to Demographia International Housing Affordability Survey 2011, Australia, New Zealand and Hong Kong housing prices are severely unaffordable. The survey covers 325 markets in Australia, Canada, Hong Kong, Ireland, New Zealand, the United Kingdom and the United States. In 2011, the survey included Hong Kong. The survey employs the  Median Multiple (median house price divided by gross annual median household income) to rate housing affordability. The Median Multiple is widely used for evaluating urban markets, and has been recommended by the World Bank and the United Nations and is used by the Harvard University Joint Center on Housing.

The survey separates prices into 4 affordability ratings: Median house prices up to 3 times of median household income are rated as "Affordable", median house prices 3.1 times to 4 times of median household income are rated as "Moderately Unaffordable", median house prices 4.1 times to 5 times of median household income are rated as "Seriously Unaffordable" and median house prices above 5.1 times of median household income are rated as "Severely Unaffordable".

In Hong Kong, median house prices are 11.4 times the median household income and Hong Kong is the least affordable place to buy a house among all the cities surveyed. 11.4 times is twice the "severely unaffordable" limit:

"Hong Kong ranked as the least affordable major market (82nd), with a median multiple of 11.4. Sydney ranked second most unaffordable, at a Median Multiple of 9.6 (81st), having slipped behind last year’s most unaffordable market, Vancouver at 9.5 (which ranked 80th). Melbourne ranked 79th, with a Median Multiple of 9.0. Plymouth & Devon, San Francisco, London and Adelaide all had Median Multiples of more than 7.0".
Source: 7th Annual Demographia International Housing Affordability Survey 2011

Housing affordability of major cities

But how are people still buying homes? Why demand is not dropping significantly if homes are extremely high priced? A hike in price like this should decrease the demand right? Wrong! Hong Kong home prices are actually affordable now, but temporarily for now! That is what most home buyers are missing. Temporarily, home buyers in Hong Kong can finance with ultra low mortgage interest rates between 0.8% to 2.1%. This is far below the lowest levels in the six nations covered in the survey. Consequently, Hong Kong homeowners (with significant number of mainland Chinese buying in Hong Kong) thinks housing is "affordable".

However things will probably change soon. Professor Chau Kwong-wing of the University of Hong Kong calls the present situation "... just a short-term illusion,":

 "People think they can afford an expensive flat with a reasonably cheap mortgage. Their dreams will burst and the flat will become unaffordable when the interest rate rises." The professor has a point. Variations in interest rates can mask or magnify structural affordability, which is measured by the Median Multiple. This is because interest rates are subject to fluctuation, while buyers and sellers do not renegotiate sales prices after the deal is concluded.

Source: Unaffordable housing Hong Kong

 People really forgets the fact that during Asian Financial crises, interest rates went up to 8%. And since currently USA and Europe can find no meaningful way to fight financial crises other than increasing their debt to unaffordable levels and printing paper money, they will most probably lead all the world with them to a high inflation and high interest. It is really scary to think what would happen to all those with large mortgage payments (large sums generate quite large monthly payments).