The global risk of housing bubbles has significantly decreased in 2023, with only Zurich and Tokyo remaining in the bubble risk category, according to the UBS Global Real Estate Bubble Index 2023 report released on Wednesday. This marks a notable reduction from the previous year when nine cities were classified in this category.
The report surveyed 25 cities and found that rising interest rates and global inflation over the past two years have led to a sharp decline in real estate market imbalances. Inflation-adjusted international home prices experienced their sharpest decrease since the 2008 global financial crisis, attributed to the end of cheap financing in the real estate sector.
Cities such as Tel Aviv, Hong Kong, Frankfurt, and Toronto, known for their high housing prices, have exited bubble territory and are now merely classified as overpriced. Zurich leads the real estate bubble index with a score of 1.71, followed by Tokyo at 1.65. Miami, Munich, and Frankfurt occupy the third to fifth positions.
In contrast to other cities where bubble risk decreased substantially, Miami remained the highest-ranked U.S. city in 2023 with a score of 1.38, just 0.13 index points below bubble risk territory. The city's housing prices have continued to increase above the U.S. average due to its comparatively low income-to-house-price levels and population influx to the U.S. sun belt.
Despite this overall decrease in bubble risk, affordability issues persist in many cities. For instance, London’s housing market remains under pressure as local affordability is at its worst since 2007 due to high mortgage rates. In Paris, house prices continue to decline among diminishing affordability, lending restrictions, and a property tax hike.
Moreover, real house prices in Zurich continued to rise in 2023 albeit at a slower pace than previous years while rental growth has accelerated sharply. In Germany, despite strong growth over the past decade, rate hikes and high inflation triggered a revaluation of almost 20% in Frankfurt and 15% in Munich.
However, UBS predicts that the seeds for the next property price boom have already been sowed in some cities. Hybrid working has not weakened demand for city living in a sustained manner and the housing shortage is likely to intensify as fewer building permits have been issued recently, especially in European urban centres.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
Add Chart to Comment
We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:
- Enrich the conversation
- Stay focused and on track. Only post material that’s relevant to the topic being discussed.
- Be respectful. Even negative opinions can be framed positively and diplomatically.
- Use standard writing style. Include punctuation and upper and lower cases.
- NOTE: Spam and/or promotional messages and links within a comment will be removed
- Avoid profanity, slander or personal attacks directed at an author or another user.
- Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
- Only English comments will be allowed.
Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.