Apartment prices in Tel Aviv have gone out of balance, and are currently being overvalued; This is according to the UBS Global Real Estate Bubbles Index for 2020, an annual study that signals a risk of a bubble forming or a significant overestimation of the world’s housing markets.
The index classifies cities according to prices, compares them with the economic situation and housing prices in the rest of the country, and accordingly ranks the risk derived from it. The editors of the index have made it clear that it does not anticipate or pretend to anticipate the bursting of the bubble, but rather presents a given state of existing risk.
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The index shows that the cities of the eurozone stood out in particular in the jump in prices recorded in them, so that Munich and Frankfurt are at the top of the table, Paris and Amsterdam are close behind them and are also in the risk zone for the bubble; Zurich, Toronto and Hong Kong also show great imbalance. Unlike last year, the housing market in Vancouver is now within the spectrum’s overestimation range, sharing the same territory with London, San Francisco, Los Angeles, Tel Aviv and New York. Estimating housing prices in Boston, Singapore and Dubai has remained fair – that is, with prices that reflect the economic reality in the region. The same is true of Warsaw, which was included in this study for the first time. Chicago still suffers from underestimation, and lies alone at this end of the scale.
Tel Aviv is the city that experienced the highest price increases among the cities in the index, over a long period of about 30 years. Although the index editors noted the short-term uncertainty, and the fact that the ability to purchase an apartment in the city has stretched to the limit, they still believe that favorable financing conditions and limited supply are likely to help maintain high prices, and that this is also a sign of economic growth.
Price increases (after adjusting for inflation) have accelerated on average in the last four quarters. In a number of prominent cities in Europe, prices have soared by more than 5%, with Munich, Frankfurt and Warsaw leading the way. Rising prices in Asia and the Americas remained in the single- to medium-term range. Madrid, San Francisco, Dubai and Hong Kong are the only cities where prices have fallen, and this is the lowest number of cities where prices have risen negatively since 2006.
Despite the corona, housing markets demonstrated resilience in the first half of 2020, and the study presents three main reasons for this. First, housing prices are a backward-looking economic indicator, and are able to reflect an economic downturn only after a certain delay. Second, most potential homebuyers were not directly affected by their income in the first half of 2020, and the credit options offered to companies and short-term employment plans alleviated the damage of the crisis. Third, governments have shown support for homeowners in many cities during the closure periods: housing subsidies have increased, taxes have been lowered, and foreclosure lawsuits have been suspended.
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