The real estate bubble: where there are the highest housing prices
Swiss bank UBS has analyzed the global real estate market and identified cities with the most unreasonably high rates. Among them, there are three megacities where the pricing bubble is particularly large.
It should be noted that the residential real estate sector has remained stable, even in spite of the crises in the economy. Bank UBS made a rating, which evaluated the risks for this market, with special attention paid to the danger of a bubble. This phenomenon is not uncommon in various segments. The very concept of a bubble is associated with a distortion of asset valuation, its exaggerated value.
UBS has calculated the risks for the market of different cities, taking into account a number of factors: the value of the object in relation to the yield from it, the comparison of the mortgage amount in the GDP, the price of real estate in the city compared to the rest of the country and others. As a result, an index was highlighted, and if a city exceeds its index of 1.5 points, it means that its market has a high risk of bubble formation.
In general, bank analysts saw such dynamics in the world:
– in the selected cities for the study during the year, the increase in housing prices averaged 10%. This figure is the highest since 2007;
– the five cities with the greatest dynamics of price increases are American metropolitan areas – Boston, Los Angeles, as well as Miami, and San Francisco.
In addition, experts have paid attention to the Canadian market, where property prices in major cities are unreasonably high. The leader here is Toronto. As for Europe, there are overvalued objects in Amsterdam, Frankfurt, as well as Zurich.
During the year, mortgage rates have almost doubled, reducing the affordability of housing for a large number of buyers. For example, a service worker can afford to buy a home that is three times smaller than what he could buy before the pandemic.
During the pandemic, many people moved to the suburbs or the countryside. Now, however, the trend is changing and people are moving back to the city, which is contributing to an increase in rents for apartments and houses. On average, rates have risen by 7 percent over the year.
According to UBS, the risk of a bubble threatens Toronto first, followed by Frankfurt and Zurich. There are also great fears about the market in Hong Kong and Munich, as well as Vancouver and Tel Aviv. Interestingly, despite the serious rise in prices, the U.S. metropolitan areas are not on the list of the most risky markets.
Analysts also noted the cities where property prices can be justified. There are only four of them – Warsaw, Milan, Dubai, and Sao Paulo.