The world’s top cities are at increased risk of a property bubble.
The risk of a property bubble in the world’s top cities has increased significantly over the past five years, according to the UK’s annual wealth management report.
The study found that Toronto was the most dangerous region, closely linked to Stockholm, Munich, vancouver, Sydney, London and Hong Kong. Prices in each city have risen by an average of nearly 50 per cent since 2011, while prices in other major cities have risen by about 15 per cent, according to the report.
The average house price in Toronto is $860,000. That number has slowed in recent months as new provincial housing policies have been enacted to curb soaring house prices.
But are these markets so overvalued that there is a risk of a bubble?
While the study used the term “bubble” to describe some markets, that does not mean there is a high risk of “implosion” in cities, says Jonathan Woloshin, one of the report’s authors.
“While there is no higher risk in American cities, San Francisco and Los Angeles are considered high because rents and housing prices exceed incomes, so there is an absolute affordability problem,” Woloshin told Jeremy hobson of Here&Now.
He said real estate in several other U.S. cities, including New York and Boston, is seen as being based on fair value based on job growth, income levels and average floor space.
Compared with other global cities, Chicago is considered undervalued.
“If you look at the average size of homes in Hong Kong compared to the United States,” Mr. Woloshin said, “it’s not that Hong Kong, London or cities like Sydney may be more expensive for their American counterparts.”
Indeed, Christie’s international real estate report found Hong Kong overtook London as the world’s first luxury market for the first time. Dan Conn, Christie’s chief executive, told Mr Hobson in May that Hong Kong had become an attractive and safe market for wealthy Chinese buyers.
The price surge has had a negative impact. They have driven low – and middle-income people out of the market, increasing the gap between rich and poor, and even leading to a rush to build homes that critics say will make us sick.
But many U.S. cities are benefiting from the global housing boom, Ms. Voloxin said.
“Several things are different this time,” he said, comparing it to the last housing bubble a decade ago. “First, the quality of mortgage underwriting is much better [and] it’s not. 2. The interest rate is significantly lower than last cycle. ”
As chief executive Jeff Braun told Mr Hobson last month, the housing boom in cities such as New York and San Francisco was underpinned by strong job growth, particularly in the technology sector. The company’s current Hudson Yards project in Manhattan is the largest private mixed-use real estate development in U.S. history.
“These two cities are driving a lot of technology and technology companies,” he said. “If you look at the job creation in this industry and the diversification away from financial services, that’s the real reason for the economy.”
Woloshin also agreed that low interest rates play an important role in rising house prices because they make mortgages cheaper. The typical rate for a 30-year loan is 3.91 percent, low by historical standards, according to Freddie Mac.
While the report suggests some cities are at risk of a bubble, Woloshin says ubs’s data reflect a positive outlook for the global economy.
“Clearly, there has never been a very clear one, but it is a good global coordinated recovery that we have been looking at for a long time,” he said.