Three US cities are overvalued but no bubble risk

An annual ranking of the world’s most-at-risk financial centers in terms of a housing bubble shows that none are in the US.

Although San Francisco, Los Angeles, and New York are considered overvalued by global wealth manager UBS, they do not rank among the 6 that could be facing a housing bubble.

Hong Kong leads those that are and is followed by Munich, Toronto, Vancouver, Amsterdam, and London.

Elsewhere in the US, Boston is considered fairly-valued while Chicago is undervalued. Overall, the index scores for the US cities in this study are below their 2006 peak values.

However, the report stresses that the situation in 2018 is different from the run-up to the financial crisis.

There is no global evidence of simultaneous excesses in lending and construction and outstanding mortgage volumes are growing half as fast they were then, limiting any damage from another crisis.

"Although many financial centers remain at risk of a housing bubble, we should not compare today's situation with pre-crisis conditions," said Mark Haefele, Chief Investment Officer at UBS Global Wealth Management. "Nevertheless, investors should remain selective within housing markets in bubble risk territory such as Hong Kong, Toronto, and London."

Caution for investors
UBS says that investors in real estate should be cautious about buying in most of the biggest developed market cities.

"The median total return on housing in the most important developed market financial centers was 10% annually over the past five years, accounting for an imputed rental income and book profits from rising prices," said Claudio Saputelli, Head of Real Estate at UBS Global Wealth Management's Chief Investment Office. "How appealing returns will be in the next few years is questionable.”