Housing bubble risk deflates across the world – except in one European city.
Housing bubble risk deflates across the world – except in one European city
Quoting a study by Swiss bank UBS, the risk of a housing bubble has decreased globally, except for one European city. Zurich and Tokyo remain at risk of a real estate bubble, while Frankfurt, Munich, and Amsterdam have moved to a lower-risk category. The decline in housing market imbalances can be attributed to factors such as inflation, interest rates, and the impact of the COVID-19 pandemic. The study highlights the importance of monitoring these factors to prevent future housing bubbles.
The impact of economic climate and market corrections
The current economic climate, including global inflation and interest rate surges caused by events like Russia’s invasion of Ukraine and the COVID-19 pandemic, has contributed to the decline in housing market imbalances. Real house prices in the 25 cities examined by UBS fell by an average of 5% from mid-2022 to mid-2023. The biggest fall was seen in Frankfurt and Toronto, with prices tumbling by 15%. The report emphasizes the end of the low-interest rate environment as a significant factor in the housing market’s decline.
Monitoring the remaining risk cities
Zurich, where UBS’s headquarters is located, and Tokyo are the only cities remaining at risk of a real estate bubble. While real home prices in Zurich continue to rise, rental growth has surpassed house price growth. The report suggests that further price upside is unlikely due to increased housing supply and rising financing costs. Monitoring these cities is crucial to prevent the formation of a housing bubble and ensure the stability of the real estate market.