Cities around the globe are experiencing a real estate bubble: study

Miami, Tokyo and Zurich top the list of cities with the highest risk of a real estate bubble worldwide, due to the high threat in their housing markets, revealed the UBS Global Real Estate Bubble Index 2024.

The investment firm’s report, which indicates the cities with the highest risk of a real estate bubble globally, revealed that Miami leads the rankingdriven by the rise of the luxury market, since prices in the southeastern Florida city have risen almost 50 percent in real terms since the end of 2019, and 7 percent of that percentage corresponds to the last four quarters.

For their part, real housing prices in Tokyo have increased around 5 percent in recent quarters, continuing the trend of previous years. In the last five years, housing prices have risen more than 30 percent in inflation-adjusted terms, more than double that of rents. Tokyo has one of the highest price-to-income ratios among all the cities in the study.

Buying homes to live in Zurich now costs almost 25 percent more in real terms than five years agohighlighted UBS.

Over the past four quarters, Zurich has also experienced one of the largest rent increases of all the cities analyzed in the study. The proportion of owner-occupied homes is declining as new properties are often marketed as buy-to-let buildings. Due to the very low inventory of owner-occupied homes in Zurich, these will increasingly be perceived as a luxury good.

In Los Angeles, for its part, real housing prices have barely increased since mid-2023. As a result of declining economic competitiveness and the high cost of living, the population of Los Angeles County has decreased since 2016 Consequently, rents have not kept pace with consumer prices. This city occupies the fourth place in the ranking.

The high inflation of the last two years contributed significantly to reducing imbalances in the housing market in Canada. Despite lower affordability, the housing market has held up well. In inflation-adjusted terms, purchase prices in both Toronto and Vancouver are only slightly below the levels of three years ago.

Low risk in European cities

The risk of a housing bubble has eased in key European cities such as Frankfurt, Munich and Paris, where prices have fallen more than 20 percent from their post-pandemic highs.

Both Frankfurt and Munich were at very high risk of a housing bubble in 2022. Since then, rising mortgage rates have caused both markets to crash, with real house prices falling 20 percent from their respective peaks. . The forecast of interest rate cuts, added to the shortage of supply, should cause a recovery in prices.

According to UBS, which manages $5.9 trillion of invested assets in the second quarter of 2024, with the acquisition of Credit Suisse, the housing shortage has played a stabilizing role in cities such as Vancouver, Madrid and Dubai, where prices continue upwards.

Sao Paulo, the example of Latin America

In Latin America, Sao Paulo shows a low real estate bubble risk, with a housing market that has remained relatively stable.

Housing prices in Sao Paulo have increased slightly for the second consecutive year in inflation-adjusted terms. However, real prices remain more than 20 percent below the peak they reached in late 2014.

Renting remains more financially attractive than purchasing a home due to very high interest rates. As a result, rents have soared by almost 10 percent in real terms in the last four quarters, the Swiss bank said.