Global Housing Markets and Risk of Housing Bubble

Global Housing Market

Ten years after the housing crisis in the US, people still can't afford to buy or sell properties, despite low unemployment. The State of Nation's Housing published a report on housing and renting in the US, which implied one-third of Americans are paying more than 30 per cent of their earnings towards housing. Even after the housing crisis, the price of properties is increasing. 

The price rise in some cities is caused by cash-rich investors, where there is no direct relationship of price to the local income, interest rates, borrowings and property value. 

The list of countries and cities at risk of entering another housing bubble due to such overvalued properties was released by the UBS Group AG 2017. The list included 10 locations in the world where the housing rates are overvalued and included a Canadian city for the first time.

Overvalued And Undervalued Cities 

Toronto, London, Vancouver and Sydney are in the top five overvalued cities in the world. The top overvalued cities, riskiest in terms of the housing bubble, include Stockholm and Munich at the top positions in Europe. London is the third riskiest, where the housing market is undergoing volatility. 

The report states economic optimism and low borrowing rates are pushing property prices up, in some of the popular urban areas, across the world. 

Chicago is undervalued as per the report. Manchester is an undervalued city where the average house price is £186069, which is low compared to the UK's national average price of £292,893. These areas are the fastest-moving properties in the country. 

On average, cities across the world underwent a rise in price by at least 20 per cent in the last three years. 

Reasons For Growing Rates In The Modern Cities 

The improvement in economic sentiments, robust income, employment opportunities, and low borrowing rates are responsible for the rise in prices. 

Savills analysis of housing prices suggests the cost is justified compared to other alternative assets where gold is taken as a benchmark. For example, it finds the price of properties in London, Hong Kong, and New York is still low compared to the gold investment's peak equivalent. 

The report on UK properties states that the rates adjusted as per inflation are almost 45 per cent higher compared to rates five years ago. The data released by the Global Residential Cities Index (from Knight Frank in Oct 2017) indicates the prices are still rising in some of the top cities' Global housing markets, where the rates are 15 per cent more than the outlay during an economic crisis. 

The report claims the financial crisis led to the loss of real income by at least 10 per cent compared to 2007, and the skilled service providers needed to work for 16 years to get a 60-square meter apartment close to the city centre in the UK. 

The expenses in some cities grow, and people are forced to live in their jobs and cannot move to other regions. However, most high-price cities continue to see an upswing in rates, due to higher demand from international buyers, especially from China. 

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