What are the cities in the world that present a higher risk of a real estate bubble?

In recent years, the house prices they have accelerated considerably globally; However, the current context, with rises in interest rates and high inflation, highlights the imbalances that could exist in the real-estate marketspecifically in some cities that present a higher risk of a bubble.

Recently, the global bank UBS presented its index of real estate bubbles corresponding to this year, in which he identified at least seven cities in the world that present a greater risk of a scenario of this nature.

According to the report, the cities identified are the following, with their corresponding score, where a score of more than 1.5 represents a significant risk:

Fuente: UBS Global Real Estate Bubble Index 2022

Within the report, it is described that the price bubble It is a phenomenon that refers to a substantial and sustained erroneous appreciation of a real estate asset, often generated by speculation and whose real value cannot be verified unless it explodes.

“The typical signs (of a housing bubble) include a decoupling between local income and rental prices, as well as imbalances in the real economy, such as excess lending and construction activity,” the report noted.

According to the analysis, in the last year the nominal price of the living place in 21 cities analyzed it grew 10% on average, that is, its highest increase since 2017. However, said increase occurred in a context where mortgage rates almost doubled in the cities analyzed, which means that the acquisition of a home much less affordable.

Related Post

Ford, GM, Arm, Adobe, Nucor, KeyCorp, and More Stock Market Movers

September 15, 2023

Ford, GM, Nvidia, AMC, Norwegian, HP Inc., Delta, and More Stock Market Movers

September 14, 2023

Some Chinese Stocks Are a Real Bargain Now. Alibaba Is One of Them.

September 13, 2023

C3.ai, Apple, GameStop, UiPath, ChargePoint, Yext, BlackBerry, and More Market Movers

September 7, 2023

Although, in order to reactivate the economy, interest rates were kept at their minimum, which accelerated real estate activity, the current context maintains pressure on the housing industry. living place in the big cities.

“Higher interest rates, inflation, turmoil in financial markets and deteriorating economic conditions are putting pressure on the boom in the living place. In most cities with high valuations, price corrections have already started or are expected to start in the next few quarters,” the report said.

the bursting

Based on the experience of previous episodes, the real estate bubbles they explode when there is an abrupt correction in the values ​​of the living placewhich, according to the UBS report, is an increasing risk if the interest rates they continue to grow.

“We cannot predict if or when a (price) correction will occur. Therefore, the risk of bubble refers to the prevalence of a high risk of a large price correction,” the document reads.

Las real estate bubblesas they grow based on speculation, and not on the real needs of the demand, tend to have a detrimental effect on the economy, since construction begins to slow down, and even to retract, with damage to employment in the industry, as well as affectations for credit institutions that stop their flow.