A closer look at house prices in 25 major cities around the world reveals that prices are falling sharply, according to a study.
A recent study by Swiss bank UBS found that the risk of property price “high” in the world’s largest cities decreased last year.
The latest Global Property Bubble Index, which looks at 25 of the world’s largest cities, shows that real estate house prices have fallen by an average of 5%, and this trend is likely to continue.
The price corrections mentioned in the report have significantly reduced the risk of an urban real estate bubble that hit the world hard during the 2008 financial crisis.
According to the report, only two cities remain in the “bubble risk” category: Zurich and Tokyo, down from nine cities last year.
Among European cities, Frankfurt, Munich and Amsterdam were moved to the low-risk “overvalued” category, following Geneva, London, Stockholm and Paris, which remained unchanged from last year.
UBS said Madrid has also seen a decline in property price imbalances, meaning it ranks alongside Milan and Warsaw as “fair value”.
A real estate or housing bubble occurs when real estate prices rise at a rapid and unsustainable pace due to increased demand and limited supply. At some point, demand suddenly freezes or decreases, leading to a sharp drop in prices and the bubble bursting.
A swaying tower on the sand
UBS blames the overall decline in housing market imbalances on the current economic climate, which has seen soaring global house prices. inflation and interest rates Over the past two years, due to factors such as Russia’s invasion of Ukraine and the coronavirus pandemic,
From mid-2022 to mid-2023, real house prices in the 25 cities surveyed by UBS will fall by an average of 5%, the bank said, adding that prices are likely to fall further.
UBS said the biggest declines were in Frankfurt and Toronto, where prices in both cities fell by 15%. These two cities received the highest risk scores in last year’s edition of his UBS report.
“For the past decade, low financing costs have been the lifeblood of global housing markets, driving house prices to dizzying heights,” the report’s authors said. “However, the sudden end to the low interest rate environment has shaken the house on the sand.”
According to the report, only Zurich, where UBS is headquartered, and Tokyo are currently at risk of a real estate bubble.
In the case of the former, real house prices continued to rise throughout 2023, albeit at a slower pace than previous years, while rental growth accelerated sharply and outpaced house price growth, UBS said.
“The supply of available housing has returned to pre-pandemic levels and we do not expect further price increases, as funding costs rise,” the bank added.
Access to housing remains a problem
UBS said places like Paris and London have seen price corrections and are at lower risk of a bubble than Zurich, but the price declines have not been enough to significantly improve access to housing.
The bank said prices were still out of sync with wages in Paris and London, noting that purchasing a 60 square meter home was still equivalent to 10 years’ annual salary for a qualified employee in the service sector.
In the face of this divergence, UBS says that even if the housing shortage is likely to recover, there is still the potential for further price declines if interest rates remain at their current high levels.