Three US cities are overvalued but no bubble risk

AFP | Hong Kong's property market has been red hot in recent years

AFP | Hong Kong's property market has been red hot in recent years

Toronto and Vancouver real estate are two of the world's most bubbly markets, according to a Swiss mega bank.

The Global Real Estate Bubble index scores for the USA cities are below their pre-recession 2006 values.

The report was released on the same day as three of Hong Kong's biggest banks raised their lending rates for the first time in 12 years, ending an age of cheap cash that could hit the city's famously red-hot property market.

"Nevertheless, investors should remain selective within housing markets in bubble risk territories such as Hong Kong, Toronto, and London", he said. Major imbalances are also found in 10 other locations including Stockholm, Paris, San Francisco, Frankfurt and Sydney. However, it did note "major imbalances" in San Francisco, Los Angeles, and NY. The 2018 Index 2018 from UBS Global Wealth Management's Chief Investment Office indicates bubble risk or a significant overvaluation of housing markets in most major developed market financial centers.

There is no global evidence of simultaneous excesses in lending and construction and outstanding mortgage volumes are growing half as fast they were then, limiting any damage from another crisis. However, an "explosive uptrend" was evident in the largest euro zone economies, as well as Hong Kong and Vancouver. Amsterdam rose from 8th place last year to 5th this year, passing Sydney, London and Stockholm.

UBS also spoke of an affordability crisis, noting that "most households can no longer afford to buy property in the top financial centres without a substantial inheritance".

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It warned this situation "jeopardises cities´ long-term growth potential". Boston is fairly valued while Chicago is the only undervalued city on the list.

Overall, prices in most of the 20 cities grew "considerably" less in the past four quarters than in previous years, the report said. Last year's price climb provoked an increase in stamp duties targeted at speculative investors.

"The prime segment has been hurt by higher stamp duties for luxury and buy-to-let". That means we've likely priced in a lot of future growth in today's market.

"In inflation-adjusted terms, they are 50% higher than five years ago".

"But a sharp correction seems unlikely, given the pent-up investment demand and ongoing low mortgage rates", UBS said in a report.

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