UBS – Global Real Estate Bubble Index, 2023

The Global Real Estate Bubble Index report by UBS discusses the impact of low financing costs on global housing markets in the past decade. These low interest rates have caused home prices to soar, but the recent end of this environment has led to a sharp drop in inflation-adjusted home prices. Cities that have been at risk of a housing bubble in the past three years have experienced an even stronger decline in prices. The impact of higher interest rates on housing markets varies across cities, depending on other factors. In markets where home financing was already barely affordable with low interest rates, the increase in rates has resulted in a decrease in local demand. Additionally, if there was a significant disconnect between purchase prices and rents, higher mortgage rates have pushed demand back towards the rental market. Housing markets that were heavily reliant on short-term financing have seen a direct impact from higher financing costs, leading to lower selling prices. The popularity of buy-to-let investments during the low interest rate period has also contributed to a correction in the market, with fire sales and declining profitability. Cities like Toronto, Frankfurt, and Stockholm, where these various factors have coincided, have experienced a faster and more severe re-pricing of housing. On the other hand, Dubai's market for owner-occupied housing has started recovering in 2021 after seven years of declining prices. The market is now considered fairly valued, supported by strong income growth and a robust rental market. While Dubai is known for its cyclical nature and potential for overbuilding, the report anticipates that price momentum will remain strong in the coming quarters.