The housing market in one U.S. financial center is overvalued and approaching bubble-risk territory, a recent analysis shows.
Prices in San Francisco have already surpassed their previous 2006 peak by 5 percent, according to 2016 UBS Global Real Estate Bubble Index report.
The report, released this week, analyzes residential property prices in 18 cities worldwide that are considered financial centers. UBS defines a bubble as “a substantial and sustained mispricing of an asset.”
San Francisco is categorized as overvalued this year, ranking No. 7 — well above the three other U.S. cities included in the report. The report explains:
In the wake of the technology boom and buoyant foreign demand, real house prices have increased in San Francisco by more than 50 percent since 2011, while the national price level has risen by just 15 percent…Even though income growth rates have been above the national rate, the imbalances in the city’s real estate market have increased.
Vancouver, near the U.S.-Canada border, ranks No. 1 on the index this year, meaning it’s facing the greatest risk of a housing bubble of the 18 cities analyzed.
Among other factors cited in the report, real house prices in Vancouver have increased by more than 25 percent since the end of 2014. The report attributes the rise to a weakened Canadian dollar that increased Asian demand for property in the city.
The index has five categories:
- Bubble risk (score higher than 1.5)
- Overvalued (0.5 to 1.5)
- Fair-valued (-0.5 to 0.5)
- Undervalued (-1.5 to -0.5)
- Depressed (score below -1.5)
The ranking and scores of the 18 financial centers analyzed for the latest index report are:
- Vancouver: 2.14 (Bubble risk)
- London: 2.06 (Bubble risk)
- Stockholm: 1.92 (Bubble risk)
- Sydney: 1.70 (Bubble risk)
- Munich: 1.59 (Bubble risk)
- Hong Kong: 1.52 (Bubble risk)
- San Francisco: 1.27 (Overvalued)
- Amsterdam: 1.22 (Overvalued)
- Zurich: 1.03 (Overvalued)
- Paris: 0.82 (Overvalued)
- Geneva: 0.75 (Overvalued)
- Tokyo: 0.68 (Overvalued)
- Frankfurt, Germany: 0.66 (Overvalued)
- Singapore: 0.45 (Fair-valued)
- Boston: 0.29 (Fair-valued)
- New York: 0.13 (Fair-valued)
- Milan: -0.09 (Fair-valued)
- Chicago: -0.70 (Undervalued)
What do you make of this analysis? Do you worry about another housing bubble bursting the U.S.? Share your thoughts below or on our Facebook page.