We Shouldn't Compare Today's Housing Bubble Situation with Pre-Crisis Conditions

03 September 2018
Joshua Chisvin

Most cities in UBS Group AG's Global Real Estate Bubble Index are overvalued or at risk of a bubble.

At least that's according to the Swiss bank's 2018 report on housing prices.

Chicago is the only undervalued housing market in the twenty-city index, while Milan, Singapore and Boston are deemed fairly valued, the report indicated. 

Ten cities — from New York to Sydney to Stockholm — are overvalued, while six are in bubble-risk territory, with Hong Kong's market the most inflated.

Incidentally, just a year ago, New York had been scored as fairly valued.

Traditional signs of a bubble include real estate prices rising out of sync with incomes, as well as economic imbalances such as excessive lending and construction activity, according to the bank's researchers.

Unlike the boom of the mid-2000s, there is no evidence of simultaneous excesses in lending and construction, the report said, and outstanding mortgage volumes are growing at about half the rate of the pre-crisis period.

The takeaway here is that, although many financial centres remain at risk of a housing bubble, we should not compare today's situation with pre-crisis conditions.

What's more, despite prices not rising as fast as they had in prior years, affordability remains a key concern.

Housing prices in major cities have increased by 35% on average over the past five years, after all. Again, at least according to the report.

In other words, incomes simply aren't climbing fast enough to keep pace with the prices in many areas.

For a skilled service worker in Hong Kong, for example, it would take twenty-two years — TWENTY-TWO YEARS!! — of their average annual income to buy a 650-square-foot apartment near the city centre.

A decade ago, it was twelve years.

For other cities, buying real estate is more feasible. Take Milan, where it would take 5.7 years of annual income.

Conversely, it would be under five years in Chicago, Boston and Los Angeles.

The more you know!

SOURCE: TheSpec.com

  Real Estate