The global housing market is experiencing a significant drop in home prices, marking the steepest decline since the 2008 financial crisis, according to a recent report by UBS. The study, published on Monday, attributes this trend to increased interest rates and inflation over the past two years, which have made homeownership more expensive for many individuals.
The report found that while some cities are witnessing lower prices, others continue to grapple with high property values. Zurich and Tokyo were identified as having the most overvalued housing markets. In Zurich, real estate prices have surged by 40% over the past decade, whereas rents have only increased by 12%. Meanwhile, Tokyo's market has shifted dramatically from being undervalued 20 years ago to now being at risk of a bubble.
The analysis also evaluated five U.S. markets: Miami, Los Angeles, San Francisco, Boston and New York. While none of these cities are currently at risk of a bubble according to the UBS assessment, both Miami and Los Angeles were noted to have overvalued housing markets. Miami's property market has seen prices double in the last decade due to increased demand driven by a continued population influx and relatively low price levels compared to incomes. Conversely, Los Angeles' housing market is facing challenges due to issues such as economic competitiveness, quality of life challenges, adverse tax legislation, and high living costs.
In contrast, cities like Toronto and Frankfurt, previously identified as potential bubble risks by UBS, have now been removed from the list.
The future of the housing market remains uncertain. Despite the recent drop in home prices in many cities, UBS warns of further potential declines. However, they also predict a possible resurgence in the housing market due to a current shortage of homes if interest rates decrease.
UBS's assessment considers five factors: price-to-income ratio, price-to-rent ratio, changes in mortgage-to-GDP ratio, changes in construction-to-GDP ratio, and relative city-to-country prices. This year's report is the eighth edition of the UBS Global Real Estate Bubble report.
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