Understanding the Global Real Estate Bubble Risks
In many major cities, the real estate market is experiencing a decline in real home prices due to high interest rates affecting demand. At the same time, property markets are slowing due to challenging financing conditions and escalating construction costs. This has resulted in easing housing bubble risks in cities like Hong Kong, London, and New York. However, cities like Miami and Los Angeles are witnessing an increase in bubble risks due to strong demand in the luxury market and a thriving stock market.
Dorothy Neufeld from Visual Capitalist provides a graphic representation of cities with the highest real estate bubble risk, based on the UBS Global Real Estate Bubble Index 2024.
Methodology
UBS analyzed real estate bubble risk across 25 major cities considering the following factors:
- Price-to-income ratio
- Price-to-rent ratio
- Change in mortgage-to-GDP ratio
- Change in construction-to-GDP ratio
- City-to-country price ratio
Bubble risk specifically refers to the potential for a significant price correction due to distortions in global property markets.
Miami Tops the List for Housing Bubble Risk
Miami has the highest bubble risk among the cities analyzed, with real housing prices having increased nearly 50% since the end of 2019. This has resulted in a higher price-to-income ratio as buyers compete for limited waterfront luxury properties. Additionally, Miami's relative affordability compared to other major U.S. metros, absence of state income tax, and favorable climate have fueled demand.
Tokyo, one of the world's most unaffordable cities, ranks second. Factors such as ultra-loose monetary policy and economic stability have contributed to high property valuations in Tokyo. In the previous year, a 646 square foot apartment cost 15 times more than an average skilled worker’s salary, exceeding levels seen in London and New York.
Dubai, although not in bubble territory, has seen home prices surge 17% between Q2 2023 and Q2 2024—the fastest increase among the cities analyzed. Over the past year, the city has experienced record transaction volumes and strong population growth as buyers are attracted to this global financial hub.
In contrast, cities like London, Hong Kong, Paris, and Toronto have seen their bubble risk decline as real home values dropped.
Bottom Line
The dynamics of the global real estate market are complex and ever-changing. While some cities are experiencing a decrease in bubble risk due to falling real home values, others are seeing an increase due to factors like strong demand in the luxury market and booming stock markets. It's crucial to understand these trends and their potential impact on the global economy. What are your thoughts on this topic? Feel free to share this article with your friends and discuss. Don't forget to sign up for the Daily Briefing, which is available every day at 6pm.
Understanding the Global Real Estate Bubble Risks
In many major cities, the real estate market is experiencing a decline in real home prices due to high interest rates affecting demand. At the same time, property markets are slowing due to challenging financing conditions and escalating construction costs. This has resulted in easing housing bubble risks in cities like Hong Kong, London, and New York. However, cities like Miami and Los Angeles are witnessing an increase in bubble risks due to strong demand in the luxury market and a thriving stock market.
Dorothy Neufeld from Visual Capitalist provides a graphic representation of cities with the highest real estate bubble risk, based on the UBS Global Real Estate Bubble Index 2024.
