The UBS Global Real Estate Bubble Index is published on an annual basis.
The report notes that expectations tend to be prone to exaggerations in boom phases. The optimistic projections of the trends… create ever-greater price fantasies.
This applies to any asset and is not unique to real estate.
According to the authors:
- Price bubbles are a regularly recurring phenomenon in property markets;
- The term “bubble” refers to a substantial and sustained mispricing of an asset;
- Typical signs include a decoupling of prices from local incomes and rents, and distortions of the real economy, such as excessive lending and construction activity;
- The UBS Global Real Estate Bubble Index gauges the risk of a property bubble on the basis of such patterns;
- The Index does not predict whether and when a correction will set in;
Price to income
It is put forward that “buying a 60m2 (650 sqft) apartment exceeds the budget of people who earn the average annual income in the highly skilled service sector in most world cities. In Hong Kong, even those who earn twice the city’s average income would struggle to afford an apartment of that size.”
Price to rent
The report finds that:
- Zurich and Munich have the peak price-to-rent ratios, followed by Stockholm and Vancouver;
- Extremely high multiplies indicate an undue dependence of housing prices on low interest rates;
- Overall, half of the covered cities have price-to-rent multiples above 30;
- House prices in all these cities are vulnerable to a sharp correction should interest rates rise;