UBS Global Real Estate Bubble Index - UBS Report Dated 2017.09.28

[John Hjorth]

I have spent some time today, trying to add some dots to my mental landscape, and trying to do at least something about my ignorance about what's going on in the World.

 

Based on what's been going on, on my LinkedIn wall, especially a report from UBS caught my attention:

 

UBS [2017.09.28]: UBS Global Real Estate Bubble Index.

 

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Full report attached [Downloadable directly from the article, so it must be eligible to attach it here, I think].

 

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A few observations:

 

1. Vancouver and Toronto are on the top of the list. No surprise, and very well documented and discussed by fellow board members, with knowledge about that, here on CoBF.

2. To my personal surprise, I see Stockholm as # 2 on the bubble list. If it's not too much to ask, I would really like my fellow Swedish board members to chim in here.

3.  New York and Boston are stated as "fairly priced" in the analysis. To me personally, that's a surpirse, too. Any comments on that from fellow board members would be appreciated very much, too.

 

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I haven't dived in any way deep into methology etc. as basis for the report. So, I'm not in any way here backing conclusions referred to etc. I just want to hear what pop up in the minds of fellow board members with local knowledge, based on charts etc., and all push back & critisism welcome.

 

Thank you in advance.

 

UBS_-_Global_Real_Estate_Bubble_Index_-_20170930.pdf

[BG2008]

New York City isn't cheap at all. But if you buy a multi-family and put 20-30% down and take out a fixed 30 year mortgage, the rental incomes can service the mortgage quite well.  Hence, this provides "staying power" to the owners in case of a 2008/2009 event.  This is my experience from the Class B assets near public transportation.  I think for a bubble to occur, it would involve some sort of inability to hold onto the assets when the market is stressed.  I kind of hate saying this because the market is certainly not cheap.  It never was in NYC.

[doughishere]

are other municipalities having budget problems like chicago is?......the story is that high taxes coupled with the crime is driving people out of the state.....and even the state is having issues.

 

lots of my friends have left for california...i chose colorado.

[HJ]

Love to know how they come up with the score. 

 

They didn't put any of the mainland Chinese cities on there.  Shanghai, Beijing gotta be way up there, if not #1 and 2.  The typical explaination: 1) no real estate tax, so virtually zero carry cost, 2) little alternatives to preserve value in RMB denominated asset. 

 

NYC has a lot of trophy assets that makes headlines.  But they are not bought by the typical New Yorkers.  For the typical family, it's often a coop with rules that discourage people from buying real estate just to flip it.  The transaction values are quite a bit lower than what they would trade for without these coop rules, flip tax payable to the coop, can't rent out the apartment for any extended period of time, etc.

 

 

 

 

[John Hjorth]

Love to know how they come up with the score. 

 

They didn't put any of the mainland Chinese cities on there.  Shanghai, Beijing gotta be way up there, if not #1 and 2.  The typical explaination: 1) no real estate tax, so virtually zero carry cost, 2) little alternatives to preserve value in RMB denominated asset.  ...

 

Good points, HJ. Much appreciated, ref. my own ignorance and biases.

[John Hjorth]

are other municipalities having budget problems like chicago is?......the story is that high taxes coupled with the crime is driving people out of the state.....and even the state is having issues.

 

lots of my friends have left for california...i chose colorado.

 

Simply mind boggling to me to loose regularly & close relationships to friends because of what's going on locally. Are you still your self in the Michigan area, Dough?

[Guest Cameron]

I have spent some time today, trying to add some dots to my mental landscape, and trying to do at least something about my ignorance about what's going on in the World.

 

Based on what's been going on, on my LinkedIn wall, especially a report from UBS caught my attention:

 

UBS [2017.09.28]: UBS Global Real Estate Bubble Index.

 

- - - o 0 o - - -

 

Full report attached [Downloadable directly from the article, so it must be eligible to attach it here, I think].

 

- - - o 0 o - - -

 

A few observations:

 

1. Vancouver and Toronto are on the top of the list. No surprise, and very well documented and discussed by fellow board members, with knowledge about that, here on CoBF.

2. To my personal surprise, I see Stockholm as # 2 on the bubble list. If it's not too much to ask, I would really like my fellow Swedish board members to chim in here.

3.  New York and Boston are stated as "fairly priced" in the analysis. To me personally, that's a surpirse, too. Any comments on that from fellow board members would be appreciated very much, too.

 

- - - o 0 o - - -

 

I haven't dived in any way deep into methology etc. as basis for the report. So, I'm not in any way here backing conclusions referred to etc. I just want to hear what pop up in the minds of fellow board members with local knowledge, based on charts etc., and all push back & critisism welcome.

 

Thank you in advance.

 

Not from Sweden but I've researched the Scandinavian countries a lot due to the high household debt to income ratio.

 

Regulators are worried about the housing market in most of the countries, Denmark has been the best at bringing down household debt. Sweden on the other hand has had trouble because they have a housing shortage which has pushed the prices higher because of immigration. You might say its fine that prices have gone higher because of a shortage and not a bubble but because people are so desperate to get a home and they can't put down the required deposit they barrow the money they need for the deposit. A little history in the 1990s home prices fell in Sweden and it caused on the biggest lenders to be nationalized.

 

Household debt as a percentage of GDP took a slight dip in 2008 but has now gone up to 86% and continues to grow unlike some of the other Scandinavian countries. Debt that is being used to fund assets that aren't going to have cashflow to pay back that debt can only rise faster than income for so long before the camels back breaks. 

[Guest Cameron]

Heres a spread sheet for household debt and income gain for sweden. What really matters is when the debt comes due.

Sweden.xlsx

[John Hjorth]

New York City isn't cheap at all. But if you buy a multi-family and put 20-30% down and take out a fixed 30 year mortgage, the rental incomes can service the mortgage quite well.  Hence, this provides "staying power" to the owners in case of a 2008/2009 event.  This is my experience from the Class B assets near public transportation.  I think for a bubble to occur, it would involve some sort of inability to hold onto the assets when the market is stressed.  I kind of hate saying this because the market is certainly not cheap.  It never was in NYC.

 

Thanks for your input here, BG2008,

 

To me, there are quite some points to your post here:

 

1. 20 - 30 percent down payment to do the investment does not come out of the blue sky. It requires hard work to create after tax earnings, combined with savings behavior.

2. The ability to hold on to the asset - through thick and thin - is absolutely crucial, so that you decide, when it's appropriate time to get out of the investment, to the contrary of your financing sources - who always "want you to quit" at the buttom.

 

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Money can still be made in every market, that is constantly expensive.

[Jurgis]

Boston is not cheap, but way cheaper than SF/Silly Valley.

Chicago is cheap, but the question is whether they can recover from their issues or if they do a Detroit.

 

I am not RE investor/expert.  8)

[John Hjorth]

Boston is not cheap, but way cheaper than SF/Silly Valley.

Chicago is cheap, but the question is whether they can recover from their issues or if they do a Detroit.

 

I am not RE investor/expert.  8)

 

Thanks for putting your shade on this, Jurgis, and thanks for sharing,

 

Re investor/expert or not, ref. your own self-perception in your post:  Personally, I put more trust in a post from you, based on your local observations, rather than putting weight to some UBS report.