With the current stock market bull run reaching nearly 10 years in length, it’s understandable that many investors are nervous about the end of the party coming sooner than later.
However, as UBS notes in its latest report, there is also growing concern about another prominent bubble that’s been in the works since the aftermath of the financial crisis.
Large amounts of easy money have fueled real estate bubbles in the world’s major cities – and the Swiss investment bank now sees the property markets in six global cities as being at risk.
THE BUBBLE INDEX
In the 2018 edition of the bank’s Real Estate Bubble Index, here are the major cities around the globe that are in or near bubble territory:
Any city with a score over 1.5 is considered at “Bubble Risk”, and right now those include two cities from Canada, one from Asia, and three from Europe.
Hong Kong (2.03) tops the index this year, leaping past Munich (1.99), Toronto (1.95), and Vancouver (1.92) which all remain at bubble risk themselves. Amsterdam and London are the two other cities that score higher than a 1.5 on the rankings.
It’s also very important to note that there are four cities that score just under the 1.5 threshold: Stockholm (1.45), Paris (1.44), San Francisco (1.44), and Frankfurt (1.43).
A COMING CORRECTION?
Investor and writer Howard Marks has noted in recent months that the wider market is in its “8th inning”, and the same case could be made for real estate.
Historically, investors have had to be alert to rising interest rates, which have served as the main trigger of corrections. – UBS Report
According to UBS, the cracks are already starting to show at the top end of the market, with housing prices declining in half of last year’s list of bubble cities. Some of the worrying factors include rising interest rates, as well as growing political tensions as the crisis of affordability makes it harder for average people to live in these global financial centers.
