The 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.
The Index measures global indicators, but in the U.S., Index scores have not risen in any of the US 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. The 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.
“The 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.”