Which Cities Have Bubble Risk in Their Property Markets?
Buoyed by low interest rates for the last decade, many property markets have seen substantial price growth since 2010. Experts warned that real estate bubbles—in which the price of assets moved up far beyond their intrinsic value—were forming.
The UBS Global Real Estate Bubble Index analyzes the real estate market of 25 major cities across the globe and assigns them a score between -0.5 to 2.0 to convey bubble risk. The higher the score, the more imbalanced the market is, with those above 1.5 in “bubble-risk” territory.
We visualize the data in the above map, along with charting the real property price changes in the last year.
Ranking Bubble Risk by City
At the top of UBS’ findings is Switzerland’s financial capital Zurich, with a 1.71 score, putting the city firmly in the bubble-risk zone. With its high-income earners and the country’s low interest rates, the city has been steadily climbing the real estate bubble-risk rankings, 5th in 2021, to 3rd in 2022, to the top spot this year.
Unlike many of its former peers in the risky territory, local prices adapted to increased mortgage rates this year, and have stayed elevated.
Here’s the full rankings for bubble risk in all 25 property markets:
Rank
City
Index Score
Rating
1
???????? Zurich
1.71
Bubble-Risk
2
???????? Tokyo
1.65
Bubble-Risk
3
???????? Miami
1.38
Overvalued
4
???????? Munich
1.35
Overvalued
5
???????? Frankfurt
1.27
Overvalued
6
???????? Hong Kong
1.24
Overvalued
7
???????? Toronto
1.21
Overvalued
8
???????? Geneva
1.13
Overvalued
9
???????? Los Angeles
1.03
Overvalued
10
???????? London
0.98
Overvalued
11
???????? Tel Aviv
0.93
Overvalued
12
???????? Vancouver
0.81
Overvalued
13
???????? Amsterdam
0.80
Overvalued
14
???????? Stockholm
0.74
Overvalued
15
???????? Paris
0.73
Overvalued
16
???????? Sydney
0.67
Overvalued
17
???????? Milan
0.49
Fair-Valued
18
???????? New York
0.47
Fair-Valued
19
???????? Singapore
0.47
Fair-Valued
20
???????? Madrid
0.46
Fair-Valued
21
???????? Boston
0.34
Fair-Valued
22
???????? San Francisco
0.27
Fair-Valued
23
???????? Dubai
0.14
Fair-Valued
24
???????? São Paulo
0.09
Fair-Valued
25
???????? Warsaw
-0.28
Fair-Valued
Tokyo (1.65) is the second and final entry in the real estate markets with immediate bubble risk. This is a decrease from nine total cities in that category last year.
In fact the other seven real estate markets which scored above 1.5 in 2022 have all seen significant real property price drops, many of them in the double-digits, which has moved them into “overvalued territory.”
These include: Frankfurt (-15.9%), Toronto (-14.7%), Amsterdam (-14.0%), Munich (-13.8%), Vancouver (-10.6%), Hong Kong (-7.1%), and Tel Aviv (-0.7%).
The key driver of these price drops across the board are the aggressive interest rate hikes to counter rising inflation, which pushed many housing markets into unaffordability, forcing sellers to lower their prices.
However, a few cities have seen real property price increases, including the aforementioned Tokyo and Zurich.
Here’s UBS’ full ranking of real property price changes between 2022–2023.
Rank
City
Real Property
Price Growth (YoY)
1
???????? Dubai
+14.6%
2
???????? Miami
+6.0%
3
???????? Tokyo
+3.6%
4
???????? New York
+3.2%
5
???????? Madrid
+2.9%
6
???????? Singapore
+2.8%
7
???????? Zurich
+1.5%
8
???????? São Paulo
+1.4%
9
???????? Geneva
-0.1%
10
???????? Tel Aviv
-0.7%
11
???????? Milan
-1.9%
12
???????? Boston
-3.4%
13
???????? Los Angeles
-3.7%
14
???????? Hong Kong
-7.1%
15
???????? Paris
-7.9%
16
???????? Warsaw
-9.3%
17
???????? Sydney
-10.5%
18
???????? Vancouver
-10.6%
19
???????? San Francisco
-10.6%
20
???????? Munich
-13.8%
21
???????? London
-13.9%
22
???????? Amsterdam
-14.0%
23
???????? Toronto
-14.7%
24
???????? Frankfurt
-15.9%
25
???????? Stockholm
-22.1%
A significant outlier within this group, Dubai, has registered double-digit growth property price growth. This was fueled by expanding household incomes—thanks to an economic boom from oil prices—as well as increased immigration by wealthy individuals.
Ranked: Cities With Rising Rental Prices
However, even as property prices have cooled in the majority of the analyzed real estate market, the rental market for many cities, like Vancouver (+10.7%) and Toronto (+6.0%) has moved swiftly in the opposite direction.
In this case, inflation is a key reason as well—pushing up incomes, in turn leading to rising rents. Furthermore, owners-occupants with tenants seek to pass on higher mortgage costs in an effort to reduce their financial burden.
Note: The term “bubble” refers to a substantial and sustained mispricing of an asset, the existence of which cannot be proved unless it bursts. But historical data reveals patterns of property market excesses. Typical signs include a decoupling of prices from local incomes and rents, and imbalances in the real economy, such as excessive lending and construction activity. The UBS Global Real Estate Bubble Index gauges the risk of a property bubble on the basis of such patterns. The index does not predict whether and when a correction will set in. A change in macroeconomic momentum, a shift in investor sentiment or a major supply increase could trigger a decline in house prices.
TORONTO – One expert predicts Ottawa‘s changes to mortgage rules will help spur demand among potential homebuyers but says policies aimed at driving new supply are needed to address the “core issues” facing the market.
The federal government’s changes, set to come into force mid-December, include a higher price cap for insured mortgages to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
CIBC Capital Markets deputy chief economist Benjamin Tal calls it a “significant” move likely to accelerate the recovery of the housing market, a process already underway as interest rates have begun to fall.
However, he says in a note that policymakers should aim to “prevent that from becoming too much of a good thing” through policies geared toward the supply side.
Tal says the main issue is the lack of supply available to respond to Canada’s rapidly increasing population, particularly in major cities.
This report by The Canadian Press was first published Sept. 17,2024.
OTTAWA – The Canadian Real Estate Association says the number of homes sold in August fell compared with a year ago as the market remained largely stuck in a holding pattern despite borrowing costs beginning to come down.
The association says the number of homes sold in August fell 2.1 per cent compared with the same month last year.
On a seasonally adjusted month-over-month basis, national home sales edged up 1.3 per cent from July.
CREA senior economist Shaun Cathcart says that with forecasts of lower interest rates throughout the rest of this year and into 2025, “it makes sense that prospective buyers might continue to hold off for improved affordability, especially since prices are still well behaved in most of the country.”
The national average sale price for August amounted to $649,100, a 0.1 per cent increase compared with a year earlier.
The number of newly listed properties was up 1.1 per cent month-over-month.
This report by The Canadian Press was first published Sept. 16, 2024.
MONTREAL – Two Quebec real estate brokers are facing fines and years-long suspensions for submitting bogus offers on homes to drive up prices during the COVID-19 pandemic.
Christine Girouard has been suspended for 14 years and her business partner, Jonathan Dauphinais-Fortin, has been suspended for nine years after Quebec’s authority of real estate brokerage found they used fake bids to get buyers to raise their offers.
Girouard is a well-known broker who previously starred on a Quebec reality show that follows top real estate agents in the province.
She is facing a fine of $50,000, while Dauphinais-Fortin has been fined $10,000.
The two brokers were suspended in May 2023 after La Presse published an article about their practices.
One buyer ended up paying $40,000 more than his initial offer in 2022 after Girouard and Dauphinais-Fortin concocted a second bid on the house he wanted to buy.
This report by The Canadian Press was first published Sept. 11, 2024.
