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The risk of a real estate bubble is growing rapidly in many countries


The risk of a housing bubble increased rapidly from across Europe, Canada, to Hong Kong.

Bloomberg The cause of the risk of a real estate bubble bursting across Europe is the need for spending to expand living space because of Covid-19 and central banks to launch strong stimulus packages.

The UBS Global Real Estate Bubble Index released on October 13 shows that European cities account for six of the world’s nine most imbalanced real estate markets. In which, the city of Frankfurt (Germany) is at the top of the list. Bubble risk also increased rapidly in Toronto, Hong Kong, and Vancouver.

List of real estate markets that UBS tracks. Markets with bubble indices above 1.5 have very high real estate risk; At 0.5 to 1.5 are being overvalued; Levels -0.5 to 0.5 are fair valuations; Levels -1.5 to -0.5 are undervalued. Graphics: Bloomberg

Unlike the global financial crisis of 2008, American cities are out of the danger zone. Moscow and Stockholm saw the biggest increases in real estate risk, while Tokyo and Sydney also increased as the property market boomed.

In all cities tracked, real estate price growth accelerated to 6% in inflation-adjusted terms from 2020 to mid-2021. This was the highest increase in seven years. As households borrow more to keep up with rising house prices, the pace of mortgage debt and debt-to-income ratios has also accelerated, particularly in Canada, Hong Kong and Australia.

Global home prices have skyrocketed in the past year as borrowing costs have fallen to very low levels and buyers are willing to pay high prices for spacious homes with lots of green space.

According to UBS, except for four cities where house prices are expected to rise, most of the rest of the market will face an abrupt halt as lending policies begin to tighten amid the easing of restrictive measures.

“Overall, bubble risk has increased over the last year, as has the potential severity of home price adjustments for many of the cities in this index,” the UBS team said. Accordingly, poorer affordability, unsustainable mortgage lending and a growing disparity between costs and rent have been the cause of housing crises.

Another factor that comes into play during the pandemic is that prices in suburban areas are rising faster than in cities for the first time since the 1990s. That reduces the likelihood that home prices will continue. escalating in big cities as businesses and employees consider more flexible working methods.

Duc Minh (Theo Bloomberg)



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