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The cities most at risk of a real estate bubble: UBS

Sarah Paynter

Major U.S. housing markets are unlikely to see a sharp price correction, according to a new study.

U.S. cities were not overvalued when compared to cities in Europe, according to the 2019 UBS Global Real Estate Bubble Index, which analyzed 24 global housing markets. Residential property prices in five U.S. cities examined, which include New York and San Francisco, hovered above what the study considers a fair assessment rate, but cities outside of the U.S. are at risk of real estate bubbles. In fact, “index scores have not risen in any of the US cities in our study for the first time since 2011.”

The study ranked half of the cities surveyed as overpriced and at risk of a bubble, with low interest rates pushing Eurozone housing markets like Amsterdam, Frankfurt, and Paris into danger.

"On a global level, economic uncertainty is outweighing the effect of falling interest rates on urban housing demand,” Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a press statement. “However, in parts of the Eurozone, low rates have still helped to push real estate valuations into bubble risk territory."

It was no surprise that residential properties in New York, San Francisco, and Los Angeles were all noted as overvalued. But prices in San Francisco and Los Angeles hit a ceiling as buyers deemed houses increasingly unaffordable and trade tensions and foreign investment losses suspended growth. “Regulatory changes and affordability issues have caused home prices in New York to lag the countrywide average,” the study said.

Index scores for the housing markets of select cities, 2019
Index scores for the housing markets of select cities, 2019

Meanwhile, the study found Boston to be in “fair value territory and benefits from the appeal of the region for businesses and high income earners.” Chicago ranked as the most undervalued city on the list, though experts cautioned against investments in the Windy City, with the city’s financial worries tempering enthusiasm for the market.

According to the study, global average price growth, adjusted for inflation, stalled for the first time since 2012, and Sydney, Vancouver, and Dubai have already seen price corrections.

Munich topped the list of high-risk real estate bubble markets. The German city’s valuations have doubled over the past decade due to high demand and a strong local economy. Toronto, Hong Kong, and Vancouver are also considered high risk.

Sarah Paynter is a reporter at Yahoo Finance.

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Yahoo Finance Morning Brief
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