Real estate bubble or boom in demand?

In just two years, the rate of employees working remotely in the richest countries of the world has fallen from 15% to 25% -30%. This, in addition to the rapid increase in demand for housing, has increased interest in housing models with features better suited to working from home, with larger balconies or even a small garden. Amid the new normal since the coronavirus, 26% of employees in the United States work from home, about one in four. According to Institutions that closely monitor the U.S. job market, at least 22% of the workforce (36.2 million) will continue to work remotely from their homes in 2025, even if the global pandemic ends.

This shows that during the pandemic, households were unable to spend on non-durable goods and services such as tourism. According to estimates by the International Monetary Fund (IMF), especially in developed countries, $ 7 trillion in savings has been accumulated and this accumulation is now moving towards real estate. However, this trend has also triggered sharp increases in house prices in some countries. So much so that in the past year alone, US house prices have risen 19.8%, the largest annual increase of all time. As mortgage-backed home loans continue to grow at the same rate, the Fed continues to buy $ 40 billion worth of mortgage bonds each month. The mortgage bond portfolio on the Fed’s balance sheet reached $ 2.5 trillion.

The balloon index

The Real Estate Balloon Index 2021 study, released by world-renowned Swiss financial institution UBS on October 5, which takes into account house prices in 25 cities around the world, indicates that real estate prices have risen to double digits in Moscow, Stockholm, Sydney, Tokyo and Vancouver. In Europe, Frankfurt, Munich, Amsterdam, Zurich and Paris stand out. It is interesting to note that while Tokyo has regressed and presents an average risk of a price bubble in Asia-Pacific like Sydney despite its double-digit rise, Hong Kong stands out for its high risk of a real estate bubble. Toronto is another city in Canada reporting balloon risk, although it has not increased at the same rate.

Moscow is the city with the biggest price increase, both including and excluding inflation. Despite the price increase of more than 20%, the risk level of a price bubble is still medium. Frankfurt, on the other hand, leads the 25 mega-cities with a 10% price increase over the past five years, corrected for inflation, and carries a very high bubble risk. Amsterdam and Moscow follow Frankfurt with their price-increasing performance over the past five years. Despite the drop in prices last year, with an average price increase of 5% over the past five years, Paris still maintains its position as a high-bubble risk megalopolis, while it is interesting to note that New York and San Francisco are both behind on an annual basis and considering the past five-year average. While San Francisco has seen five price cuts in the past year, the four worst performing cities are Dubai, which has seen prices fall by 5% on average over the past five years, and London, New York and San Francisco, which saw a price drop of 1% or less.

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