In its Global Real Estate Bubble Index, UBS sees the residential real estate market on the brink of collapse, with gloomy predictions for 25 cities worldwide, with a reality check expected for Zurich.
UBS reckons that the global boom in residential markets is coming to an end. The global urban housing markets are showing elevated imbalances and are out of sync with rising interest rates.
That is the conclusion of the bank's annually published Global Real Estate Bubble Index for which residential property prices in 25 major cities around the world were analyzed.
The greatest imbalances are seen in Toronto and Frankfurt, but clear signs of a price bubble are also visible in Zurich, according to the report. Elevated risks are also evident in Munich, Hong Kong, Vancouver, Amsterdam, Tel Aviv, and Tokyo.
Rising Prices and Debt
Rising prices, since the middle of last year combined with increasing household debt and rising mortgage costs, were cited as reasons for the increased bubble risk.
Nominally, residential price growth in the 25 cities surveyed accelerated by nearly 10 percent from mid-2021 to mid-2022, corresponding to the highest annual growth rate since 2007, UBS writes.
Soaring Valuations
Compared to last year's study, index values have nevertheless not increased on an average basis due to strong growth in incomes and rents. Inflation-adjusted price growth has slowed considerably, although current valuations are inflated, the authors conclude.
According to UBS, rising interest rates will significantly increase risks. Mortgage rates have almost doubled on average in all analyzed cities compared to their low in mid-2021, they said.
«Inflation and asset losses due to the current turmoil in the financial markets are reducing household purchasing power, which curbs demand for additional living space. Housing is thus also becoming less attractive as an investment, as borrowing costs in many cities increasingly exceed the yields of buy-to-let investments», says Claudio Saputelli, head of real estate at the global wealth management chief investment office at UBS.
The lead author of the study, Matthias Holzhey wrote that «we are actually seeing a global stalling of the boom in the owner-occupied housing market. In a large part of the very highly valued cities, we can even expect significant price corrections in the coming quarters».
Population Growth
For Zurich, UBS also sees some stabilizing factors for the situation in Zurich. Current high price tags are residential housing are likely to be subject to a reality check after the Swiss National Bank raised interest rates last month. Moreover, continued strong population growth in Zurich could ensure valuations only gradually normalize without a short-term nominal price correction.
