The UBS Global Real-Estate Bubble Index for 2024 identifies cities facing a potential real estate bubble. Although bubble risks have declined, six cities remain at high or elevated risk. UBS evaluates cities by factors like price-to-income ratios and mortgage-to-GDP ratios. These metrics highlight market vulnerabilities, making the index a valuable predictive tool. Investors rely on it to assess risks in global real estate markets.
Bubble Risks Drop in Many Global Cities
In 2023, 16 cities were labeled as at high or elevated risk of a real estate bubble. However, the 2024 UBS report shows a major drop, with only six cities now in this category. This shift reflects lower home prices in areas previously overextended. Since mid-2022, inflation-adjusted housing prices in many cities have decreased by 15%. Rising interest rates contributed to this trend, reducing buyer demand.
hi room | Pexels | Since mid-2022, inflation-adjusted housing prices in many cities have decreased by 15%.
Key Metrics in the UBS Real Estate Bubble Index
The UBS Global Real-Estate Bubble Index evaluates multiple indicators to assess bubble risks. It examines price-to-income ratios, which compare wages to local property prices. Price-to-rent ratios reveal how much it costs to rent compared to buying. The mortgage-to-GDP ratio shows how much people borrow for home purchases relative to the economy. New construction-to-GDP ratios highlight how much supply enters the market. Together, these indicators help UBS assess market stability.
Cities must score above 1.0 on UBS's scale to qualify as elevated risk. Cities above 1.5 are considered high-risk, suggesting greater vulnerability to market volatility.
US Cities Facing Elevated Bubble Risks
Among the six cities identified, Miami and Los Angeles stand out as the two US cities at risk. Miami’s popularity continues to rise, attracting investors and residents drawn to its tax benefits. The city’s booming economy has driven property prices to unsustainable levels. Meanwhile, Los Angeles grapples with affordability issues as home prices and rent burdens remain high. Both cities rank as elevated risks on the UBS index.
High-Risk Global Cities to Watch
Zurich and Tokyo are two global cities categorized as high-risk by UBS. Zurich’s rapid property value growth and limited supply increase its vulnerability to a bubble. High demand continues to drive Zurich’s housing prices upward. Tokyo, on the other hand, faces population density issues that inflate housing prices. Despite Japan’s overall population decline, Tokyo's real estate remains highly sought after. Both cities scored above 1.5, highlighting significant exposure to market corrections.
@olii_so | Instagram | Zurich’s rapid property value growth and limited supply increase its vulnerability to a bubble.
Price Corrections in Cities With Previous High Risks
Cities with previous high bubble risks, such as Frankfurt, Munich, and Stockholm, recently experienced 20% or more price corrections. These adjustments occur when inflated property values become unsustainable. When prices rise too high, markets often correct to reflect reality. UBS attributes these price corrections to rising interest rates that began in mid-2022. High interest rates reduce buyer purchasing power, lowering demand and prices.
Elevated but Not High-Risk Cities
Cities with scores between 1.0 and 1.5 are at elevated risk, suggesting potential instability. However, they face less immediate threat compared to high-risk cities. Geneva and Toronto both fall into this category. Geneva's unique housing restrictions continue to drive up prices due to limited supply. Toronto has a strong demand for housing driven by immigration, job growth, and young professionals. Both cities show an upward trend in prices despite recent corrections.
Understanding Bubble Risk Indicators
UBS’s detailed index is a critical tool for predicting real estate trends. Cities with high price-to-income and price-to-rent ratios are often more vulnerable to bubbles. Over time, local residents struggle to afford property in such cities. UBS helps investors and policymakers address housing affordability concerns by analyzing these indicators. This year’s report clearly shows cities likely to face corrections. It also shows which markets might remain resilient in a changing economy.
