The words “housing bubble” can strike fear into our hearts, even this far out from the financial crisis. While real estate experts insist that we won’t see that kind of market crash any time soon, some are concerned by the meteoric rise of home prices in certain cities.
Most Overvalued City
International investment bank UBS recently named San Francisco as the most overvalued city in America. Prices have risen incredibly high in the city—20 percent more than their peak in 2006. That has investors understandably concerned. Los Angeles and New York also made the list.
“The risk level for the major U.S. cities is lower than other global cities in this study,” Jonathan Woloshin, a real estate analyst at UBS, assured. Elsewhere, Hong Kong, Amsterdam, Vancouver, London, Toronto, and Munich were all ranked on the list of potential real estate bubbles.
A Slowdown Rather than a Burst
It looks like the hottest high-end real estate markets around the globe—including San Francisco—are slowing down rather than heading for a collapse. That’s the good news. Woloshin pointed out that “there’s always risk.”
Looking at San Francisco, we can see how rising home prices have led to buyer burnout. Home buyers are more likely to demand the absolute best if they’re going to pay premium prices, which means that sellers will either have to deliver the goods or accept a lower offer than they hoped to get. This back-and-forth is helping to cool off the market.
Risks of Overheating
A different analysis by realtor.com ranked 10 markets in the US that are on the verge of being too hot to handle. In these markets, the rising prices must either slow down or burst. Los Angeles and San Francisco both made the list, as did San Jose (their number one hotspot) and Fresno. These California cities have seen prices rise as much as 19 percent compared to 2001.
Portland, Oregon, just barely made the cut, with Salt Lake City, Dallas, Austin, and Buffalo also in the danger zone. The only city in the Southeast to make the list was Charleston, SC.
Where Can You Get a Bargain?
The UBS Global Real Estate Bubble Index rated Los Angeles and New York City as slightly overheated, with a combination of high costs and new-build developments helping to slow down the race toward a housing bubble.
If you want to get a bargain in a major city, look toward Chicago. UBS rated the Windy City as “undervalued.” With prices adjusted for inflation, Chicago homes are selling for about 30 percent below their 2006 peak.
