An analysis published in the 2024 Real Estate Bubble Index by UBS has suggested that the housing market bubbles in Frankfurt and Munich continue to cool. Still, housing remains unaffordable to many in both German cities.

2024 Real Estate Bubble Index by UBS

According to UBS, the risk of housing bubbles bursting has “on average, decreased slightly for the second consecutive year. From a regional perspective, the picture is more nuanced,” the report read.

The annually published index looks at residential property prices in 25 major international cities and establishes where there may be a housing bubble. UBS defines a bubble as the “substantial and sustained mispricing” of housing.

These bubbles are caused by a sudden surge in demand, which landlords or sellers take as an opportunity to sharply increase asking rents or prices so dramatically that the increases are not based on “fundamentals” such as wages, employment, construction costs, demographics or interest rates.

The existence of a bubble cannot be proven unless it bursts, according to the Swiss bank. However, historical data suggests that “a decoupling of prices from local incomes and rents, and imbalances in the real economy, such as excessive lending and construction activity” are typical signs of a bubble.

In the 2024 report, six international cities were in the “High” or “Elevated” bubble risk zone. This includes Miami, Tokyo, Zurich, Los Angeles, Toronto and Geneva. However, in Zurich, Toronto and Geneva, the “bubble burst risk” has slightly decreased since the 2023 report.

Frankfurt and Munich have “moderate bubble risk” scores

Back in 2022, Frankfurt and Munich were both at “very high risk” of a housing bubble. However, since then, “rising mortgage rates have seen both markets tumble, with house prices falling by one-fifth since their respective peaks,” UBS explained.

In 2024, UBS assessed both German cities to have a “moderate bubble risk”. Real prices have roughly fallen by 20 percent compared to their peak in mid-2022 in both cities. “Two years of significantly higher interest rates were all it took to eradicate the price gains seen during the [coronavirus] pandemic,” the bank wrote. 

In a price-to-income assessment, the bank also determined how many years a skilled service worker needs to work to be able to buy a 60-square-metre flat near the city centre - if they didn’t spend any of their annual income. In Munich, the purchase would require eight years of work without any expenses, and in Frankfurt, six years of work.

“Buying a 60 square meter apartment exceeds the budget of those earning the average annual income in the skilled service sector in most world cities,” the bank wrote. In Hong Kong, skilled service employees would have to work for 22 years without spending any money before they could afford such a flat, in Paris 13 years and in London 12 years.

Where in the world is housing most overpriced, according to UBS?

In all, here are the cities that are most at risk of a housing bubble in 2024:

1. Miami, United States (1,79)
2. Tokyo, Japan (1,67)
3. Zurich, Switzerland (1,51)
4. Los Angeles, United States (1,17)
5. Toronto, Canada (1,03)
6. Geneva, Switzerland (1)
7. Amsterdam, the Netherlands (0,98)
8. Sydney, Australia (0,78)
9. Boston, United States (0,78)
10. Vancouver, Canada (0,77)

You can read the full report on the UBS website.

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