The new UBS Global Real Estate Bubble Index study looked at the world’s major cities to determine which, if any, may be “bubble risk” and vulnerable to a housing crash in the near future. UBS considered such factors as rent prices in relation to income, mortgage changes and construction levels.

Lead authors of the Index study, Claudio Sapotelli and Matheas Holzhey, wrote, “Low affordability already poses one of the biggest risks to property values in unban centers. If employees cannot afford an apartment with reasonable access to the local job market, the attractiveness and growth prospects of the of city in question drop.”

Here are the 7 North American Cities Most At Risk according to the newest UBS Global Real Estate Index Study:

Toronto Canada – bubble index score of 1.86

As the fourth largest city in North America, Toronto has experienced a huge spike in the Cost of Living over the past 10 years. Rents tripled between 2000-2017. Real estate values have also spiked but too low new construction and affordability have generated a “wait and see” attitude in buyers.

Vancouver Canada – bubble index score of 1.61

Much like San Francisco and Seattle, stunning natural beauty ignited skyrocketing home prices of +75% over the last decade. The market has begun to stagnate a bit and in response, the Bank of Canada has lowered its qualifying mortgage rate to enhance financing conditions for consumers.

San Francisco – bubble index score of 1.15

Home prices in San Francisco have become real estate lore. Average workers would need to spend 116.8% of their annual salary to live in some Bay Area counties. Adding to the affordability issue is the fact of diminishing foreign demand. The bright spot in The City’s housing market, however, is that the current number of housing permits is at its highest level since the 1980’s. Will an increasing supply ease and accelerate price corrections around the Bay?

Los Angeles – bubble index score of 0.99

The largest city in California is struggling to curb rising unaffordability as home prices have risen +50% since 2012. Los Angeles is looking at rent control as an option to help but the city’s booming economy and overriding income growth are doing little to weaken demand. However, UBS expects demand to weaken in 2020 due to the city’s exposure to international trade conditions.

New York City NY – bubble index score of 0.50

 Rents are up nearly +60% yet home price growth is slower in the Big Apple than in other areas throughout the nation. Affordability issues are improving and income growth is surpassing inflation. UBS does not, however, see a rebound in home prices “…as the financial center in Manhattan lacks economic stimulus.”

Boston – bubble index score of 0.36

Boston is comparatively healthy to other US cities but its growing income-price discrepancies are worrisome, according to UBS. “Prices have been increasing continuously since 2012…” but during the last four quarters, its 3% home price growth is now more in line with the national average. “The economic appeals of Boston and a catch-up in home values have triggered a relatively strong rise in prices.”

Chicago – bubble index score of 0.77

Chicago is the only “undervalued” city to make this list. Its real estate prices are -25% lower than in 2006. True, Chicago is affordable BUT the city has a very high degree of indebtedness, declining population, and sluggish economic growth. To be optimistic, Chicago’s rental and income growth could keep pace with price increases.

Thanks to Veronika Bondarenko for InmanNews for source data.

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