As prices have continued to climb in urban centers worldwide, some global cities have greater/lesser bubble risks.
Housing Price Imbalances Sky-High Worldwide
The latest annual UBS Global Real Estate Bubble Index 2021 published in Q4 2021 points to international cities with the highest bubble risks, markets that are overvalued, fair-valued and undervalued.
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On average, bubble risk increased during this last year as has the potential severity of a price correction in many cities tracked by this index. Home price growth increased +6% in all cities except Milan, Paris, New York and San Francisco. (Does this mean that New York and San Francisco are now considered bargains?)
Double-digit price acceleration of the last year occurred in Moscow, Stockholm, Sidney, Tokyo and Vancouver.
Price Bonanza Worldwide Plus Caution
According to the UBS Global Real Estate Bubble Index 2021, four factors contributed to this price bonanza worldwide: the importance of living space as spurred by the pandemic; a higher willingness to pay for housing; already favorable lending conditions that improved as lending conditions became more relaxed; and higher savings rates along with booming equity markets that freed up additional housing equity.
The UBS Index points to two cautionary notes: the end of urban outperformance and worsening affordability.
For the first time since the 1990’s housing prices in non-urban areas increased faster than city prices. Remote working and reduced options in entertainment and shopping have taken heavy tolls on urban housing prices while the uncertainty of re-populating city-center offices remains increasingly unclear.
Worsening affordability in urban areas, already strained pre-pandemic, has relegated first-time and lower-income buyers to outlying suburban and urban areas. As higher and higher prices inevitably lead to higher leverage and higher risks, unsustainable mortgage lending and/or unsustainable rent increases may, in UBS’s words, “prove a dead end in the long-term.
UBS Global Real Estate Bubble Index
- 1.5+ – bubble risk 0.5 to 1.5 – overvalued
-0.5 to 0.5 – fair-valued -1.5 to -0.5 – undervalued
- Frankfurt – 2.16
- Toronto – 2.02
- Hong Kong – 1.90
- Munich – 1.84
- Zurich – 1.83
- Vancouver – 1.66
- Stockholm – 1.62
- Paris – 1.59
- Amsterdam – 1.58
- Tokyo – 1.46
- Sydney – 1.39
- Miami – 1.24
- Los Angeles – 1.20
- Geneva – 1.18
- London – 1.10
- Moscow – 1.08
- Tel Aviv – 1.07
- San Francisco – 0.74
- Boston – 0.70
- New York – 0.54
- Singapore – 0.52
- Madrid – 0.46
- Milan – 0.37
- Warsaw – 0.35
- Dubai – -.57
More of Same Predicted for 2022
Matthias Holzhey, the lead author of the UBS Global Real Estate Bubble Index 2021, said that most cities in which there has been “dramatic” demand and price growth also have strong economic fundamentals and low inventory levels. All of these factors mean that price pressure will remain into 2022.
Holzhey said, “There’s a good chance we’ll get more of the same next year…(although)…some of the price momentum has been too strong and automatically will slow down. You cannot keep up with +10% price growth for (an extended) period.”
Thanks to USB Global Real Estate Bubble Risk Index
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