The Global Housing Bubble Is Biggest In These Cities

Tyler Durden's picture

Two years ago, when UBS looked at the world's most expensive housing markets, it found that London and Hong Kong were the only two areas exposed to bubble risk.

What a difference just a couple of years makes, because in the latest report by UBS wealth Management, which compiles the bank's Global Real Estate Bubble Index, it found that eight of the world's largest cities are now subject to a massive speculative housing bubble.  And while perpetually low mortgage rates are clearly to blame for the rapid ascent of home prices, Chinese money laundering operations clearly seem to also be playing a role as their favorite markets of Vancouver, Toronto and Sydney all made this year's list.

Bubble risk seems greatest in Toronto, where it has increased significantly in the last year. Stockholm, Munich, Vancouver, Sydney, London and Hong Kong all remain in risk territory, with Amsterdam joining this group after being overvalued last year. Valuations are stretched in Paris, San Francisco, Los Angeles, Zurich, Frankfurt, Tokyo and Geneva as well. In contrast, property markets in Boston, Singapore, New York and Milan seem fairly valued, while Chicago remains undervalued, just as it was last year.


Price bubbles are a regularly recurring phenomenon in property markets. The term “bubble” refers to a substantial and sustained mispricing of an asset, the existence of which cannot be proved unless it bursts. But recurring patterns of property market excesses are observable in the historical data. Typical signs include a decoupling of prices from local incomes and rents, and distortions of the real economy, such as excessive lending and construction activity. The UBS Global Real Estate Bubble Index gauges the risk of a property bubble on the basis of such patterns.

As UBS points out, artificially low interest rates in Europe, for example, have kept mortgage payments below their 10-year average despite real prices surging 30% since 2007. 

Falling mortgage rates over the last decade have made buying a home vastly more attractive, which increased average willingness to pay for home ownership. In European cities, for example, the annual usage costs for apartments (mortgage interest payments and amortization) are still below their 10-year average, despite real prices escalating 30% since 2007. In Canada and Australia, too, a large part of the negative impact of higher purchase prices on affordability was cushioned by low mortgage rates.


The intuition is that the national and global growth of high-wealth households creates continued excess demand for the best locations. So, as long as supply cannot increase rapidly, prices in the so-called “Superstar cities” are supposed to decouple from rents, incomes and the respective countrywide price level. The superstar narrative has received additional impetus in the last couple of years from a surge in international demand, especially from China, which has crowded out local buyers. An average price growth of almost 20% in the last three years has confirmed the expectations of even the most optimistic investors.

Of course, at some point even artificially low interest rates can't offset 10%-20% annual real home price increases, which imply a doubling of prices every 4-7 years.  

Annual price-increase rates of 10% correspond to a doubling of house prices every seven years, which is not sustainable. Nevertheless, the fear of missing out on further appreciation predominates among home buyers. After all, the price increases appear rational, for three reasons.


First, financing conditions in many cities are now more attractive than ever before. Second, the global increase in wealthy households seemingly creates constant demand for the most attractive residential areas. Third, building activity cannot keep pace with this demand.


Expectations tend to be prone to exaggerations in boom phases. The optimistic projections of the trends outlined above create ever-greater price fantasies. However, should sentiment change or interest rates increase, a correction is practically inevitable. In the past, rising interest rates almost always triggered a crash in housing markets. In addition, the dependence of prices on international flows of capital represents an incalculable risk. Plus, once demand fell, even the low growth in supply would no longer provide an anchor.

Meanwhile, the U.S. has managed to avoid UBS's bubble territory, and a repeat of the 2007 housing crisis, for now...even though markets like San Francisco and Los Angeles look set to give it another try...

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
besnook's picture

the housng bubble is a 1%er problem this time. who cares.

Paul Kersey's picture

78% of Americans are living from paycheck to paycheck, so they are only one job loss away from experiencing the housing bubble first hand, regardless of which city they live in.

Cabreado's picture


the "middle class" (for example) is paying more for housing now than ever before.

Endgame Napoleon's picture

So are the poor if they have not reproduced.

Bigly's picture

I am not a fan of SFO. I fail to see why values are so high. Not everyone works for goolag. The weather is not that great. Meh.

Krungle's picture

SF gets almost the same amount of sunlight per year as San Diego (66% vs 68% sunny days), temperatures are pretty much constant 50 to 70 degrees with almost no freezes and very few days over 90. There are a few pockets that are prone to nasty winds off the water, but otherwise there's not really much to complain about there in terms of weather. There's lots of other reasons to dislike the place, but weather isn't one of them.

Nostradumbass's picture

San Diego is too close to Mexico but San Francisco is too close to hell.

Other than that, summers are much better in San Diego:

Bigly's picture

Guys, lets split the diff.  Laguna beach area perhaps?

Nostradumbass's picture

Always loved Laguna and spent my youth body surfing all along the coast there.

Morro Bay is my favorite but fog also occurs there in summer months. Cayucos has less fog.

canisdirus's picture

You've clearly never been to both. San Diego has 9+ months of neearly continuous warm/dry weather every year. The fog burns off fast and clouds are rare.

SF has some nasty wind and much more rain.

Killdo's picture

there are homeless heroin addicts sleeping all over the place on sidewalks, using the whole city as a toilet. There is more and more of them every day. Tenderloin is spreading 

Green2Delta's picture

I've never been to SF, but my sister was just there a few months ago. Your comment is exactly how she described it. I'm a baseball fan and like to visit different fields, but the CA stadiums are probably off the list. 

LeftandRightareWrong's picture

There are people that will only live in NY, SF, LA or Hong Kong.

Endgame Napoleon's picture

Some say it is because of too many people with high incomes concentrated in that area, competing for homes and bumping up prices with their ability to pay more.

It is sort of the opposite of labor markets where too many moms with spousal income or welfare and taxfare for out-of-wedlock reproduction compete for jobs, driving down wages due to the fact that their unearned income streams make it easy for them to accept low pay.

Some say the SV housing inflation is due to foreign real estate speculators and foreign tech workers, overvaluing modest homes that would seem more valuable in their home countries than they do to the eyes of Western buyers.

FrankDrakman's picture

Both Vancouver and Toronto have cooled off significantly as the result of provincial governments levying non-resident real estate transaction taxes. Since there were rumours of both long before they were levied, I'm sure some of the last run up was a rush to beat the transaction tax. We'll see what happens. 

anarchitect's picture

Toronto has corrected 20% but Vancouver hasn't corrected at all.

FX223's picture

Toronto is just beginning to correct.  New listings are way up and time on market more multi offers within 24h of listing.  The pain is just starting.

The Real Tony's picture

Toronto is irrelevant all that matters is what happens to Richmond Hill, Markham, Unionville and Stouffville. Those 4 cities not Toronto show the direction of real estate in the entire GTA. Richmond Hill is always the first to move of the 4 cities. Richmond Hill is like the needle on a compass. Toronto means nothing the amount of Chinese money in Toronto percentage wise by race is low.

jbwilson24's picture

plus interest rate hikes and new stress test rules coming... toronto is going to sag much further.

Endgame Napoleon's picture

They should do something about it. Some people need more space, and professionals should be able to buy a home. The prices are ridiculous.

The Real Tony's picture

That's easy, bar all the Chinese from buying real estate and make all the Chinese sell their real estate holdings outside of China. That would solve the entire problem for the whole world for at least the next million years.

Paul E. Math's picture

They don't need to do anything.  They just need to stand back and let the collapse of home prices happen.

OliverAnd's picture

Both cities have cooled off but home prices are still higher than they were last year(in prime downtown Toronto neighborhoods).  The housing market is too important for the Canadian economy for the government not to prevent it from collapsing.  The worst case scenario stagnation in prices next year.  Many here are hoping for 40-60% because they simply cannot even afford a garage.  They fail to realize that if such were to happen, society would collapse as this is the sector the Canadian economy depends on mostly; why would you want to buy in such an environment?  Torontonians wanted a world class city and so they are getting one; this means expensive everything from homes to bottle water.  You cannot have a world class city with rural Canadian prices.  Toronto and Vancouver still have a long way to go to catch up to the prices in London, New York, Paris, Hong Kong, etc.  I am sure the Chinese will find a way to still invest in Canada; one that comes to mind is to have their children 'invest' an x amount in order to get their permanent status and then begin buying homes once again.  The entire population of Canada is smaller than a Chinese village........    

Cabreado's picture

When the bubble bursts, the "bigger bubble" cities will drag it all down.

Appropriately so.

Sonny Brakes's picture

Houses need continuous replacement over the lifetime of its mortgage so yes it does, over time, go up in value, but the number of people able to afford proper housing will continue to dwindle and the state will continue to tax people out of their homes.

Mazzy's picture

The elitists want their own fiefdoms via rental properties.  They don't give a fuck if 90% of people are priced out as long as they can get their income stream.  Why would they want reform or any increase to actual supply?

In times of olde you could at least gaze upon the hill toward the Baron's castle and figure out who literally owned your ass.  Today it's a bit harder, they are hidden behind tax policy and shell companies.  It was actually a little more honest when the Baron had to send a tax collector and a couple of knights door-to-door to take a chunk of your wealth.

Stormtrooper's picture

END THE FED!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

LeftandRightareWrong's picture

ZIRP -- weapon of mass destruction.  Another Greenspan in the making, "I didn't see that coming".

No Escape's picture

Save your large cardboard boxes...might be able to sell them as dwellings soon.

yerfej's picture

It will not matter if Toronto melts down as there is no one living there that is from this planet, they are all complete leftist zipper heads.

opport.knocks's picture

As a TO resident, I disagree. Only 80% of the general population are leftists. Most of the Chinese that i know are over 40 and lean to the right because they escaped all that crap. Filipinos are another story.

Mazzy's picture

I don't give a fuck about housing prices in Jew York, Hong Dong, or San Fransissyco; I only care about my house on my street and the adjacent streets filled with very real and honest neighbors (yeah, even the slightly weird ones, but at least we're all net contributors and just want to be left alone).



Kat Daddy's picture

Great job, Rahm!


In reality we only rent our homes and property from the state. If you don't think so try not paying your property tax (rent) and watch how quick the state will repossess your property.

peterk's picture

the sad thing is real estate prices  EFFECT peoples LIVES in every way.

Real estate is a a place to live.

Now they have commoditized it into a bubble., and this really impacts the economy in the long run as people

cant afford to get married  an all that.It then changes consumers spending behaviour as a result.

High prices as we know steals expendiure into more productive areas like opening a business etc.


But i suppose none of that matters as long as the  FAT OLD FARTS who own properties are now asset rich

and suddenly are the most important members of their extended families....where as many years ago the oldies

were ignored!.

Asset rich, income poor...its always the same story.

All bubbles burst, but this one JUST DOESNT it seems.


Only when i see EURODOLLAR rates spike up as they did last year, and importanly the JGB rise up which i consider

a leading indicator, will i say this bubble has burst in property.



The Real Tony's picture

The worldwide real estate bubble will implode when all the Chinese go broke. The Chinese always buy highest and try to sell even higher. The Chinese are the creators of most of the modern day bubbles or ponzi's. They will all implode some day and then everyone except the Chinese will have money. Only then can the world rebuild itself.

Gwaihir the Windlord's picture

I've never heard about a bubble in Stockholm on news

slackrabbit's picture

Anyone take a look at Auckland New Zealand.

0ne million dollars for a house and the price to income ratio is 9.54 times earnings...

San Pedro's picture

Property Flippers have greatly added to this "bubble" valuations horror. We need "owner occupancy"  requirements to assure "real home owners" are buying the properties rather then a flipper that not only contributes to "bubble valuations" but also runs up "property taxes" in "bubble" communities. 

Gusher's picture

Housing bubble my ass. It's I can't afford to build a NEW house for what it costs today.  DOLTS!!!

Mission Canyon's picture

Some pretty ugly ameteur geography in that second map, making it appear as if Stockholm, Sweden is 80° latitude, north of Norilsk, Russia in the Arctic Ocean.  Perhaps moving the town there would cut down on the rapefugee problem?  See if Russia will sell Sweden the un-nuked part of Novaya Zemlya.