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November 10, 2022

The Biggest Real Estate Bubbles in the World

Housing bubbles are a tricky phenomenon. As a market gathers steam and prices increase, it remains a matter of debate whether that market is overvalued and flooded with speculation, or it’s simply experiencing robust demand.


Of course, once a bubble bursts, it’s all obvious in hindsight. One common red flag is when prices decouple from local incomes and rents. As well, imbalances in the real economy, such as excessive construction activity and lending can signal a bubble in the making.



The map above, based on data from the Real Estate Bubble Index by UBS, examines 25 global cities, scoring them based on their bubble risk.


Prices in these 25 cities rose 10% in a year, the highest increase since 2007. Four U.S. cities are among the top five with the fastest-rising prices. Most people remember when the housing bubble burst in the U.S., leading to the financial crisis of 2007-2008. Bubbles occur when prices rise beyond a sustainable level, and they are a recurring phenomenon in real estate markets. But real estate prices pretty much always go up, and the existence of a bubble can’t really be proven until it bursts. One can only attempt to recognize the risk.


A new 2022 annual report by global financial services firm UBS (UBS) does just that. UBS’s annual Global Real Estate Bubble Index says that historical data reveals patterns of property market excesses. Typical signs, the report says, include a disassociation of prices from local incomes and rents, and imbalances in the real economy, such as excessive lending and construction activity. The UBS index gauges the risk of a property bubble in 25 cities around the world, including five in the U.S., on the basis of these patterns.


Nominal house price growth in the 25 cities accelerated to 10% from mid-2021 to mid-2022, the highest increase since 2007. Four U.S. cities are among the top five with the fastest-rising prices. Valuations in Canadian and European cities also show elevated risks, the report says. To determine the risks of a bubble, UBS scores each city on a weighted average of these five standardized city sub-indices:


  • Price-to-income
  • Price-to-rent
  • Change in mortgage-to-GDP ratio
  • Change in construction-to-GDP ratio
  • Relative price-city-to-country indicator. (In Singapore, Hong Kong, and Dubai, this is replaced by an inflation-adjusted price index.)

The ranking determines whether a city is a “bubble risk,” “overvalued,” or “fair valued.” These are the world’s biggest real-estate bubbles.


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Source: Samanda Dorger

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