From UBS:
The UBS Global Real Estate Bubble Index is designed to track the risk of housing bubbles in global financial centers. Bubble risk is most distinct in London and Hong Kong. Deviations from the long-term norm point to significantly overvalued housing markets in Sydney, Vancouver, San Francisco and Amsterdam. Valuations are also stretched in Geneva, Zurich, Paris, Frankfurt and, to a lesser degree, in Tokyo and Singapore. The US cities of New York and Boston are fairly valued, while Chicago is undervalued relative to its own history.
At risk of a price correction
Cities at or near the bubble risk zone face a higher risk of a large price correction. A change in macroeconomic momentum, a shift in investor sentiment or a major supply increase could trigger a decline in house prices. Between 1985 and 2009, whenever the index exceeded 1.0, i.e. it entered the upper half of overvaluation territory, a real price correction of on average 30% began within three years 95% of the time. Investors in overvalued markets should not expect real price appreciation in the medium to long run.
Macro-environment fosters housing bubbles
Real estate prices in many global cities have doubled since 1998 in real terms. On average, they are higher than they were before the 2007–08 financial crisis. A mix of optimistic expectations, favorable economic fundamentals and capital inflows from abroad has caused valuations to soar in certain cities in recent years. Loose monetary policy has prevented a normalization of housing markets and encouraged local bubble risks to grow.
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