For the second consecutive year, the overall risk of housing bubbles in global cities has decreased, according to UBS’s analysis, and home prices in many places have hit their lowest point. However, danger hasn’t completely disappeared, particularly for one city. “Miami now exhibits the highest bubble risk among all cities in this study,” UBS stated.
“High bubble risks are also present in Tokyo, and despite a notable reduction in score from last year, Zurich remains vulnerable,” the report continued. “Elevated housing bubble risks are also evident in Los Angeles, Toronto, and Geneva.”
The pandemic saw home prices surge as people, enabled by remote work and historically low mortgage rates, scrambled to buy properties. While home prices remain high and continue to rise nationwide, the pace has slowed. Inflation-adjusted housing prices in the cities studied are about 15% lower than mid-2022, when the Federal Reserve and other central banks aggressively raised interest rates, per the UBS study. In cities like Frankfurt, Munich, Stockholm, Hong Kong, and Paris, prices have dropped by over 20% from their pandemic peaks. Meanwhile, in Vancouver, Toronto, and Amsterdam, prices have fallen around 10%. However, “in highly desired locations like Dubai and Miami, housing prices have continued to rise,” the report notes.
In the U.S., an affordability crisis is gripping the housing market. As UBS observed, the percentage of household income required for monthly mortgage payments far exceeds levels seen during the peak of the early 2000s housing bubble. Despite this, sharp price corrections have been rare. For instance, home prices in New York have only dipped 4% from pre-pandemic levels and have even risen over the last year. Boston has seen prices surge by 20% since 2019, outpacing rental market and income growth.
Miami, however, stands out. “Driven by a booming luxury market, Miami’s home prices have soared nearly 50% in real terms since the end of 2019, with 7% of that growth occurring in the last four quarters,” UBS reports. In contrast, Los Angeles—another notoriously expensive city—has seen minimal price increases since mid-2022.
UBS uses a rating system where any score above 1.5 indicates high bubble risk. Miami’s score of 1.79 puts it at the top of the list. Back in 2019, the average home value in Miami was around $346,000. Today, it’s closer to $580,000, and prices have not dropped.
Early in 2023, the question was raised: “Is Miami’s home price correction delayed, or will the city escape it entirely?” At the time, local real estate experts attributed Miami’s price surge to a combination of domestic buyers seeking more affordable homes, corporations relocating, and foreign buyers paying in cash. The big question was whether this trend would persist as the pandemic faded. So far, Miami has avoided any significant price correction, but there are signs of strain in the condominium market, which could signal broader changes or remain an isolated issue.
Curiously, while Miami’s residential market faces high bubble risks, its office space sector is thriving amid the national office space downturn, as previously noted by Capital Economics. This divergence between the city’s commercial and residential real estate sectors is noteworthy.
