Housing Bubble in Some World Cities

Of 25 major cities analyzed, more than half are either at risk of a housing bubble or are overvalued, according to UBS’ Global Real Estate Bubble Index 2020. The index looked at typical signs of a bubble, which include a decoupling of prices from local incomes and rents, and imbalances in the real economy, such as excessive lending and construction activity. Toronto is the only major North American city in the study that was found to be at risk of a housing bubble. Vancouver, British Columbia, Los Angeles, San Francisco, and New York are considered overvalued, but not at risk of a bubble. Boston is at fair value, and Chicago is the only North American city considered to be undervalued. Europe appears to have the greatest risk of housing heat, along with Hong Kong. Munich and Frankfurt in Germany and Warsaw, Poland, top the list, with home prices rising more than 5% in the last four quarters. Paris, Amsterdam and Zurich are also in bubble risk territory. Cities not at risk of a bubble, but considered overvalued, include Vancouver, London, Tokyo, Los Angeles, Stockholm, Geneva, San Francisco, Tel Aviv, Israel, Sydney, Moscow and New York. Home values fell in just four of the 25 cities analyzed: Madrid, San Francisco, Dubai, United Arab Emirates, and Hong Kong. The last time there were fewer cities with negative price growth was in 2006. The pandemic has increased demand for larger homes with more outdoor space, and in some cities that has caused a flight to the suburbs. Both New York and San Francisco have seen large outflows of the population either to smaller cities or suburban areas. That makes the future health of urban housing markets uncertain both in the short and long term, especially since no one knows how long the pandemic will drag on.