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Munich is the city at most risk of a property bubble topping a list of 24 cities according to the latest UBS global real estate bubble index.

It is followed by Toronto, Hong Kong and Amsterdam. Frankfurt, Vancouver and Paris are in bubble risk territory as well, while major imbalances characterize Zurich, London, San Francisco, Tokyo and Stockholm.

The study examines rental prices in relation to incomes, mortgage changes and construction levels before attributing a figure to each city.

Cities assigned at number over 1.5 have a bubble risk, between 0.5 and 1.5 are overvalued, are fair valued between -0.5 and 0.5 and undervalued between -0.5 and -1.5.

Valuations remain stretched in Los Angeles, Sydney, Geneva and New York. By contrast, property markets in Singapore, Boston and Milan seem fairly valued while Chicago remains undervalued, the study suggests.

Madrid, Moscow and Tel Aviv, included for the first time this year, are in overvalued territory while Dubai is fairly priced.

Over the last four quarters, UBS says the imbalances have soared particularly in the Eurozone, with Frankfurt and Paris the two most prominent new additions to the bubble risk zone when compared with last year.

By contrast, valuations in Vancouver, San Francisco, Stockholm and Sydney have fallen sharply. London’s property market has cooled down considerably, moving the financial hub out of bubble risk territory for the first time in four years.

On the other hand, index scores in New York and Los Angeles are slightly lower than last year while Tokyo and Singapore remain almost unchanged.

Mark Haefele, Chief Investment Officer at UBS Global Wealth Management, said: “On a global level, economic uncertainty is outweighing the effect of falling interest rates on urban housing demand. However, in parts of the Eurozone, low rates have still helped to push real estate valuations into bubble risk territory.”

On average, in cities analysed, inflation-adjusted price increases have practically come to a standstill in the last four quarters.

Residential property only appreciated markedly in Moscow, Boston and Eurozone cities. Frankfurt was the only city to see double-digit price increases, which were common globally in previous years.

By contrast, there were corrections of over 5 percent over the previous year in Sydney, Vancouver and Dubai.

Price growth rates has continued to slow in a majority of cities. Average price growth has come to a standstill for the first time since 2012.

The median price-income ratio has increased from five to seven years in the cities in our survey over the last decade.

Table of cities and changes since last year

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Regions in more detail – Europe

Index scores have increased in all cities within the Eurozone, driven by low interest rates. With Paris and Frankfurt now in bubble risk territory. In Madrid and Milan the housing market is recovering, but still appears to be at an earlier stage of the cycle. In contrast to their Eurozone counterparts, London and Stockholm’s index scores have declined over the last year. London’s housing market has left bubble risk territory as inflation-adjusted prices have been trending downwards since their mid-2016 peak.

United States

Index scores have not risen in any of the US cities in our study for the first time since 2011. Regulatory changes and affordability issues have caused home prices in New York to lag the countrywide average. Similarly, affordability issues, trade tensions and diminishing foreign demand have capped price growth in San Francisco and Los Angeles for now. Boston is still in fair value territory and benefits from the appeal of the region for businesses and high income earners. Chicago is undervalued but continues to lag far behind given its increasing fiscal challenges.

Middle East

Over the last 30 years, Tel Aviv has seen some of highest price growth among the cities we cover in this report. Prices rose nearly constantly between 2003 and 2017. An increase in mortgage rates triggered a correction. Recently, prices have mostly stabilized, but the city is still in overvalued territory. Dubai’s house prices are highly volatile. Since the last peak in 2014, prices have fallen by almost 35% and the index value has declined sharply. Prices are expected to find a bottom soon. The market is in fair value territory. 

Asia Pacific

The momentum in Hong Kong’s red-hot property market has stalled. The weaker economic outlook has cooled residential buyer sentiment. However, the market remains firmly in bubble risk territory. By the end of the first quarter of 2019, prices in Sydney were 15% lower than at the peak, and credit growth for housing had reached an all-time low. Singapore’s brief housing boom between mid-2017 and mid-2018 is over. Regulatory measures cap price growth expectations and keep the market in fair-valued territory.

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