House prices are falling in some of the world’s major cities, but many are overvalued and at risk of entering “bubble” territory, according to a new UBS report.
With interest rates and inflation soaring over the past two years, many people find it more expensive to buy a home. This has caused home prices to fall in some cities around the world, while prices continue to rise in other metropolitan areas.
“For the past decade, low financing costs have been the lifeblood of global housing markets, driving house prices to dizzying highs. But the sudden end to the low interest rate environment has shaken the house on the sand. “It has said. 8th annual UBS Global Real Estate Bubble Report.
“On average across cities, inflation-adjusted house prices have fallen over the past year at the steepest rate since the 2008 global financial crisis,” the report said.
Many of the cities that were included in the bubble area last year, such as Toronto and Frankfurt, are now removed from that list, UBS said.
This year, Zurich and Tokyo are at the top of the list of overvalued housing markets and at risk of a bubble.
UBS defines a “bubble” as “a significant and persistent mispricing of an asset that cannot prove its existence until it bursts.”
The UBS ranking is based on five factors: price-to-income, price-to-rent, change in mortgage-to-GDP ratio, change in construction-to-GDP ratio, and relative price of city to country.
In Zurich, residential real estate prices are 40% higher in real terms than they were 10 years ago. In contrast, rents have increased by 12% over the past 10 years. “The relationship between purchase prices and rental rates remains out of balance, especially given the high interest rate environment. The market therefore remains in the bubble risk zone,” the report said.
According to UBS, Tokyo has become the second most overvalued housing market. The bank said imbalances in the Tokyo market have “increased from undervaluation 20 years ago to bubble risk today.”
UBS researchers also looked at five U.S. markets in their global report: Miami, Los Angeles, San Francisco, Boston and New York.
UBS said Miami’s housing market appears overvalued as the city continues to attract buyers from around the world, even though no U.S. market is at “bubble risk.” Ta.
According to UBS, home prices in Miami have risen faster than in the rest of the country, doubling over the past decade. “Demand is reinforced by continued population inflows and absolute price levels that remain relatively low compared to incomes.”
Los Angeles is the only other U.S. city on the overrated list. UBS said West Coast cities are “suffering from a broader loss of economic competitiveness due to significant impacts on the technology and entertainment sectors, quality of life challenges, unfavorable tax policies, and high costs of living.”
The housing market is at a crossroads in many cities around the world. Despite falling house prices in many cities around the world last year, “real house prices still have room to fall further,” UBS warned. “However, the housing shortage leaves many cities well-positioned for another economic boom if interest rates come down.”