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9
TRACKING
HOUSING BUBBLES
e UBS Chief Investment Office's Global
Real Estate Bubble Index 2019 measures the
latest property prices and cost of living in
global cities. Putting the housing market into
long-term perspective, the Index is designed
to track the risk of property price bubbles in
global cities.
e Index measures global indicators, but
in the U.S., Index scores have not risen in any
of the U.S. cities in the study for the first time
since 2011. New York, San Francisco, and Los
Angeles are all measured as overvalued, but
according to UBS, the variation in valuations
among cities reflects their relative economic
strength over the last couple of years. For
example, strong employment and income
growth over the last decade have underpinned
price increases in California.
Affordability issues, trade tensions and
diminishing foreign demand have capped
price growth in San Francisco and Los
Angeles for now. Boston's housing market
benefited from its good affordability and
economic appeal for businesses and high
income earners. e local housing market
is still in fair-valued territory. Weakening
support from the financial industry and an
unfavorable tax treatment have led valuations
to decline in New York. Chicago continues
to lag far behind given its increasing fiscal
challenges.
San Francisco is one of the most
overvalued cities in the country, with an
index level of 1.15. UBS notes that real prices
increased by 85% between 2012 and 2018 in the
city, fueled by booming technology companies
and a large amount of IPO money making its
way into real estate.
"e weakness in the Bay Area's housing
market is exacerbated by diminishing foreign
demand and the historic low affordability for
the working middle class," UBS states. "With
the highest number of housing permits since
the late 1980s, the supply shortage may start
to ease and potentially accelerate the price
correction."
