UBS reported Wednesday that an analysis of residential property prices in 25 major cities around the world found that seven cities in Europe, North America and Asia are in bubble-risk territory.
Despite the current global recession brought on by the coronavirus pandemic, inflation-adjusted house price growth in the 25 cities, on average, accelerated in the last four quarters, which UBS considers unsustainable.
“It is uncertain to what extent higher unemployment and the gloomy outlook for household incomes will affect home prices,” Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a statement.
“However, it’s clear that the acceleration over the past four quarters is not sustainable in the short run. Rents have been falling already in most cities, indicating that a correction phase will likely emerge when subsidies fade out and pressure on incomes increase.”
The eurozone stands out as the region with the most overheated housing markets. Munich and Frankfurt top the UBS Global Real Estate Bubble Index ranking. Bubble risk is also high in Toronto, Hong Kong, Paris, Amsterdam and Zurich.
Eleven cities on the new index are on the overvalued range of the spectrum, including in the U.S., San Francisco, Los Angeles and, to a lesser extent, New York. Boston is among six cities considered fairly valued. Chicago has the distinction of being the only market on the scale that is undervalued.
On average, inflation-adjusted annual price growth rates in the cities analyzed have accelerated in the last four quarters. In many European metropolitan areas, prices shot up by more than 5%, led by Munich, Frankfurt and Warsaw, which was included in the study for the first time.
Price growth in Asia/Pacific and American cities, with the exception of Sydney, remained in a low-to-mid single-digit range. Madrid, San Francisco, Dubai and Hong Kong were the only cities that experienced a decline in prices. The last time fewer cities had negative price growth was in 2006, according to UBS.