Inflation-adjusted house prices grew by 6% in the year to mid-2021 across the 25 global cities analysed by the latest UBS Global Real Estate Bubble index. Plummeting borrowing costs and the demand for extra space created by the shift towards working from home have helped drive the rally. Closed offices and entertainment venues are also denting the appeal of cities. “For the first time since the 1990s, housing prices in non-urban areas have increased faster than in cities.”
The 2008 financial crisis was caused by an overheated US housing market, but today America looks in much healthier shape, say Robert Armstrong and Ethan Wu in the Financial Times. While prices have soared over the past year, “mortgage-delinquency rates are parked near historical lows”. Low interest rates are keeping mortgages affordable.
Instead, UBS finds that Frankfurt, Toronto and Hong Kong are the cities most at risk of a bubble. The report compares prices to data on local incomes and rents and looks for signs of excessive lending and construction activity to determine the risk of a bubble. London is rated as “overvalued”, but is not in bubble territory.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Germany, where both Frankfurt and Munich make the top five in the bubble index, shows particular signs of overheating. It is historically a nation of renters, says Andreas Wagner in The Sunday Times, with a homeownership rate of 43%, compared to 65% in the UK. Pro-tenant laws and high transaction costs mean many see little point in buying. Yet rising prices are prompting people to bet on bricks and mortar: the average price per square metre in Berlin has risen from €1,750 to €5,150 in ten years. Young Germans sound British as they talk of getting on the “property ladder”.
Back to the office
London’s office market has turned a corner, says Tom Howard in The Times. Property agent Cushman & Wakefield reports that firms leased 2.77 million square feet of office space in the capital during the third quarter, a 54% jump on the amount rented during the previous three months. There has been especially strong demand from media and technology businesses. The data pours “cold water on the idea” that the pandemic heralded the end of the city-centre office.
Facebook is one of the bigger tenants to have signed a new London lease of late, says Carol Ryan in The Wall Street Journal. After delaying new office decisions because of lockdowns, more businesses are taking the plunge. Uncertainty after the 2016 referendum slowed the building of new office blocks in London, so supply is tight. London-focused real estate investment trusts (reits) are cashing in. In New York, however, a “building glut” means office developers face a tougher period ahead.
-
Is the AI boom another dotcom bubble?25 years on from the dotcom bubble bursting, is it time for investors to consider the sustainability of the AI boom in the stock market?
-
What is the S&P 500?The S&P 500 is one of the world’s most popular stock market indices and has almost tripled in value over the last decade. But what is the S&P 500, and which companies does it contain?
-
Why CEOs deserve a pay riseOpinion The CEOs of big companies often come under fire for being grossly overpaid. But the truth, as per some economists, is the opposite. Do they merit a pay rise?
-
Rolls-Royce stock jumps 15% – could it climb further?Aircraft-engine group Rolls-Royce’s CEO has been hailed as a hero for spearheading the firm’s recovery. And the future looks bright, says Matthew Partridge
-
The power of private marketsInterview Helen Steers, co-manager of the Pantheon International investment trust, tells MoneyWeek about the vast array of compelling opportunities in private equity
-
Vertex Pharmaceuticals is an uncommon opportunity in rare diseasesVertex Pharmaceuticals operates in a profitable subsector and is poised for further success
-
Global investors have overlooked these top tips in emerging marketsOpinion Chris Tennant, co-portfolio manager of Fidelity Emerging Markets, picks three attractive companies in emerging markets
-
King Coal has not been dethroned yet — should you buy?The demand for coal is only growing, yet investors don’t seem to want to take advantage of the opportunity, says Rupert Hargreaves
-
It’s time to start buying Europe again, says Merryn Somerset WebbOpinion Europe's stocks are cheap and the economic backdrop is starting to look cheerier, says Merryn Somerset Webb
-
Prosus to buy Just Eat for €4.1 billion as takeaway boom fadesFood-delivery platform Just Eat has been gobbled up by a Dutch rival. Now there could be further consolidation in the sector
