The Upside to Slumping Home Prices

Slumping home prices in the wake of high mortgage rates has a notable upside: It’s helping to correct housing market imbalances in major cities globally and move markets away from bubble territory, according to a report Wednesday from investment bank and financial services company UBS.

The company’s annual Global Real Estate Bubble Index analyzed the housing markets of 25 global financial centers and found just two at risk of a bubble: Zurich and Tokyo. In those two cities, property prices have continued on an upward swing, the report said.

In comparison, nine cities were in the bubble risk zone a year ago.

The term “bubble” refers to a “substantial and sustained mispricing of an asset, the existence of which cannot be proved unless it bursts,” according to UBS. 

Cities in the bubble-risk zone last year, Toronto, Frankfurt, Munich, Hong Kong, Vancouver, Amsterdam and Tel Aviv, are now merely considered “overvalued.” They join the housing markets in Miami, Geneva, Los Angeles, London, Stockholm, Paris and Sydney, which continue to be overvalued. 

“In inflation-adjusted terms, prices are actually 5% lower now than in mid-2022,” said Claudio Saputelli, head of real estate at the firm’s Global Wealth Management’s Chief Investment Office. “On average, the cities lost most of the real price gains made during the pandemic and are now close to mid-2020 levels again.”


Most of the cities analyzed have seen property price drops during the last four quarters, but in the cities that have been categorized as a bubble risk within the last three years, property prices have declined more significantly, by 10% on average, the index said. 

In Frankfurt and Toronto, for example, the two cities with the highest risk scores in last year’s index, prices tumbled by 15% over the last year. 

New York, Boston, San Francisco and Madrid meanwhile are now fairly valued, as are Milan, São Paulo, Brazil and Warsaw. Singapore and Dubai are fairly valued as well, “even though their reputation as geopolitical safe-havens has recently triggered a surge in demand for both renting and buying there,” the report said. 

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