Global Real Estate Bubble 2022

Strong house price growth: Nominal house price growth in the cities analyzed accelerated to 10% from mid-2021 to mid-2022, representing the highest increase since 2007. Four US cities—Miami, Los Angeles, San Francisco, and Boston—are among the top five with the fastest-growing prices.

Household leverage on the rise: In almost all cities, households have been leveraging up. Outstanding mortgages recorded the strongest increase since 2008. Debt-to-GDP is on the rise as well, reflecting the cheap financing conditions and weak economic growth since the pandemic.

High imbalances in Canada and Europe: Imbalances are sky-high in both analyzed Canadian cities, with Toronto topping the index. Valuations in Frankfurt, Zurich, Munich, and Amsterdam also show elevated risks in Europe. In contrast, there is no bubble risk in the US cities.

Gloomy prospects: Higher interest rates, inflation, turmoil in the financial markets, and deteriorating economic conditions are putting the housing boom under pressure. In a majority of cities with high valuations, price corrections have either already begun, or are expected to start in the coming quarters.

Affordability to the fore: Since last year, mortgage rates have almost doubled on average across the cities analyzed. Alongside increased prices, this makes city housing much less affordable. A skilled service sector worker can afford roughly one-third less housing space than before the pandemic.

Urbanization back on track: People have returned to the cities. Strong household formation and unaffordable owner-occupied housing drove demand for rental units. As a result, rents grew by 7% on average last year, making up all rental losses accumulated during the first year of pandemic.?