According to a report released by UBS on Monday, the risk of a real estate bubble in the euro zone and Canada is the highest in the world. In contrast, the real estate bubble in various U.S. cities has eased.
Munich named the world’s most risky real estate bubble market. The UBS Global Real Estate Bubble Index tracked the residential markets of 24 financial centers and found that seven of these cities had unusually high house prices.
Due to the strong local economy, solid population growth and shortage of new home supply, Munich has been rated as the world’s most risky real estate market with a bubble.
Toronto, Hong Kong and Amsterdam are close behind. The investment bank said that the main driving force of the European property market comes from low interest rates, so the risk of bubbles in Frankfurt, Vancouver and Paris should not be underestimated.
Mark Haefele, chief investment officer of UBS Global Wealth Management, said in a report that on a global scale, concerns over economic uncertainty outweighed the stimulus effect of lower interest rates on urban housing demand. However, in some euro areas, real estate valuations are still in a bubble risk zone, stimulated by low interest rate policies.
UBS says the term bubble refers to a significant and persistent mispricing of an asset. No one can prove its existence unless the bubble bursts.
Of the five U.S. cities analyzed by the index, none of the markets are considered to be at risk for bubbles. The report states that, although favorable factors such as strong employment performance and rising incomes have pushed up California house prices, tight affordability and falling international demand have dampened price growth in San Francisco and Los Angeles. Boston’s residential market benefits from good affordability and economic appeal to businesses and high-income earners. In New York, housing prices have continued to fall due to affordability issues and adverse tax policies. According to the report, Chicago is the only city considered to be undervalued. Since 2000, weak economic development has led to local house prices rising less than 20%.