Frankfurt tops Global Real Estate Bubble Index
Frankfurt topped the 2021 Global Real Estate Bubble Index. That’s according to a MoneyTransfers.com data analysis. The analysis gave the city a 2.16 index putting it at the fore of the urban centers with the riskiest housing markets.
Moneytransfers.com’s analysis provided an outlook into the global urban housing market. It identifies where the most prominent gaps exist currently.
Why is Frankfurt facing a housing bubble?
Several reasons explain Frankfurt’s rise to the top of the list. First, the city has continued to experience robust price growths since 2016. At the time of writing, its price growth is about 6% annually, that’s unsustainable.
Secondly, behind the upsurge in property prices is the city’s solid economic growth. As such, its population has swollen by 12 percent in the last decade. However, increased construction hasn’t kept pace with the growing demand pushing rents up by nearly 3% annually.
Furthermore, affordable mortgages and easy financing conditions have exacerbated the situation. The soaring rents have attracted speculators looking to invest in buy to let properties. Again, most developments have concentrated on the luxury market, inflating the prices further.
The city’s unaffordability pushes it to the brink of a property bubble. For starters, its price to income ratio has doubled. Moreover, its population is declining owing to more people opting to work remotely and relocating to roomy suburban residences.
What’s the global real estate bubble outlook?
The study categorized global cities into four groups depending on their risk index. At the top are cities likely to experience a bubble risk. These have an index of above 1.5.
Besides those, there are overvalued cities that have a risk index of between 0.5 and 1.5. Then there are fair valued cities whose indices lie between -0.5 and 0.5. Finally, the study identified the cities with undervalued housing sectors. These had indices of between -1.5 to -0.5.
Which cities experienced elevated risk
Toronto and Hong Kong joined Frankfurt in the cities with elevated bubble risks. According to the assessment, the two cities had risk indices of 2.02 and 1.90, respectively. Those figures explain their second and third positions on the list.
Munich, Zurich, Vancouver, and Stockholm are the other cities falling under this category. The four occupied the fourth to sixth spots with indices of 1.62 -1.84. And rounding up the category were Paris and Amsterdam, which recorded 1.59 and 1.58, respectively.
Overvalued and undervalued cities
Tokyo, Sidney, Miami, and Los Angeles led in the second category of overvalued cities. The four took the tenth to thirteenth positions on the log.
Geneva, London, Moscow, and Tel Aviv were other global cities with a similar risk assessment. Likewise, San Francisco, Boston, New York, and Singapore City made it to this group. The group of urban centers attained risk measures of 0.52 – 1.46.
Further, the study identified Madrid, Milan, and Warsaw as the cities with a moderately priced housing market. Here the risks ranged from a high of 0.46 to a low of 0.35. Meanwhile, Dubai, with a -0.57 index, remained undervalued.