This article is from the Australian Property Journal archive
HOUSING shortages have prevented real estate bubbles forming around the world, according to financial services firm UBS, and ongoing low supply and falling interest rates are likely to push Sydney prices up again, leaving the city at a “moderate” risk of its own bubble.
The level of risk marks a slight increase from last year’s Global Real Estate Bubble Index from UBS Global Wealth Management, in contrast to the global average decreasing for a second consecutive year.
Miami (up to 1.79 on the index, with a score above 1.5 deemed at high risk) holds the highest bubble risk among the cities analysed. A high bubble risk can also be seen in Tokyo (up to 1.67) and, despite a significant decline in the score compared to last year, Zurich (1.51).
Los Angeles (up to 1.17), Toronto (down to 1.03), and Geneva (down to 1.00) each hold elevated risks.
Sydney ended the 12-month period in the moderate range, at 0.78.
Inflation-adjusted housing prices are now on average roughly 15% lower than in mid-2022, when interest rates started to surge globally. Claudio Saputelli, head real estate at UBS Global Wealth Management’s chief investment office said the cities recording the strongest price corrections are those that displayed a high risk of a real estate bubble in previous years.
Real prices in Frankfurt, Munich, Stockholm, Hong Kong, and Paris are below their post-pandemic peaks by 20% or more. Vancouver, Toronto, and Amsterdam recorded sharp price declines of around 10% in real terms.
Stephen Cabot, investment consultant, UBS Global Wealth Management, said for Sydney, prices slightly increased in inflation-adjusted terms over the last four quarters and are about 10% below the peak seen in 2022 in real terms, while they lifted by about 5% in the past year.
“The resilience of prices is primarily a result of a pronounced housing shortage. The market continues to show only a moderate real estate bubble risk. With falling interest rates, prices are likely to increase more strongly once again.”
“Real estate bubble risk has fallen considerably in cities where home values have shown relative stability during the interest rate turnaround like Sydney and Vancouver, since extreme housing shortages and rising rents helped stabilise markets there.”
Also at moderate risk of a real estate bubble are Amsterdam, Boston, Frankfurt, Munich, Tel Aviv, Hong Kong, Vancouver, Dubai, Singapore and Madrid.
Dubai recorded the strongest increase in the risk score in the repot..
Low risk of a real estate bubble – a score between 0.5 and 1.00 – was recorded in San Francisco, New York, and São Paulo. In Europe, after further declines in the index score, London, Paris, Stockholm, and Milan also fell into this low-risk category,while Warsaw remained low. São Paulo showed the lowest bubble risk among the analyzed cities.
On average, a skilled service-sector employee can afford 40% less living space than in 2021, before the rise in global interest rates.
“Current price levels seem far from sustainable at prevailing elevated interest rate levels – especially in markets with high home ownership rates. However, a significant deterioration in affordability does not necessarily cause a price correction,” the report said.
An increasing housing shortage, reflected in rising rents, helped stabilise many urban housing markets. Real rents have increased by 5% on average over the last two years, outpacing income growth in most cases.
“This has contributed to lower bubble risk scores globally.”
Matthias Holzhey, lead author of the study at UBS Global Wealth Management, said real housing prices in many cities have bottomed out.
“The economic outlook will likely determine whether prices once again surge or rather track sideways.”
