Many major cities around the world are overvalued and at more risk of a bubble than in 2016, according to the UBS Global Real Estate Bubble Index 2017. In fact, Chicago is the only major city to be undervalued globally.
Since 2012, Chicago home prices have risen by 15 percent but are still 30 percent below their peak in 2006, according to the city. The city also is grappling with a decreasing population as residents continue to relocate to the suburbs or other cities, as well as slow employment, income and economic growth. UBS Wealth Management expects this trend to continue, meaning affordability will continue.
Toronto topped the UBS index worldwide, but San Francisco and Los Angeles top the list in the United States. In the California cities, strong demand has significantly decreased home affordability. In the former, home prices have skyrocketed 65 percent since 2012, and while that growth has cooled slightly recently, it’s still 6 percent above the national average.
In Los Angeles, housing prices have increased 45 percent since 2012 compared to the average U.S. growth of 23 percent.
“The recovery in the U.S. housing market following the bursting of the housing bubble in 2007 has taken national home prices to new heights,” said Jonathan Woloshin, co-head of Americas Fundamental Research at UBS Wealth Management’s Chief Investment Office. “In our opinion, housing affordability is significantly more challenged than conventional wisdom posits.”