IMF worries for LuxembourgĪctions were urgently needed to reduce pressures in the housing market, the IMF said at the time.
Last March, the International Monetary Fund expressed its concerns over house prices in the grand duchy. The Luxembourg housing market is not addressed in the UBS report. “A skilled worker from the service sector can now buy an apartment with one room less in Munich on average than before the pandemic,” it said. Frankfurt, like Munich, risks a drag on demand due to a subdued economic outlook and higher mortgage rates. Toronto topped the list, together with Frankfurt, with both of these markets exhibiting pronounced bubble characteristics, said UBS. A change in macroeconomic momentum, a shift in investor sentiment or a major supply increase could trigger a decline in house prices. The index does not predict whether and when a correction will set in. The UBS Global Real Estate Bubble Index gauges the risk of a property bubble on the basis of such patterns. But historical data reveals patterns of property market excesses. The term “bubble” refers to a substantial and sustained mispricing of an asset, the existence of which cannot be proved unless it bursts. The bubble index for these cities ranged between 2.21 for Frankfurt and 1.61 for Amsterdam.īubbles are a recurring phenomenon in property markets, UBS explained. Looking at Europe, UBS’s report pointed to bubble-like conditions in five major cities, including Frankfurt, Zurich, Munich and Amsterdam. Indeed, we are witnessing the global owner-occupied housing boom finally under pressure, and in a majority of the highly-valued cities, significant price corrections are to be expected in the coming quarters.” “With a deterioration of economic conditions, this too is at risk of faltering. In a paragraph headlined “Game over”, the UBS report noted that a “robust labour market” remains the last pillar of support for the owner-occupied housing market in most cities. But as real estate markets rarely trend sideways, this is not the most likely outcome.” Labour market as last pillar “In cities with strong population growth, such an adjustment could manifest in the form of a prolonged stagnation in nominal purchase prices and a price correction in real terms-i.e., adjusted for inflation.
“Consequently, the willingness to pay for owner-occupied homes is likely to take a hit,” the UBS report said. With a rise in interest rates, finance costs have increased while financial markets across the world have been rocked by geopolitical developments and severe declines in asset prices. It's “game over” for housing markets, Swiss bank UBS writes in its latest Real Estate Bubble Report. House owners and real estate investors should not expect the market to trend sideways. Housing markets in major cities across the world face a “prolonged stagnation” in purchase prices and a price correction.
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