UBS: These 7 cities are most at risk of a real estate bubble

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  • The housing market is typically one of the most stable and important elements of any modern economy.
  • The UBS Global Real Estate Bubble Index tracks changes in the valuation of housing markets across the world to determine which cities are at the greatest risk of a bubble.
  • The bank looks at five factors including price-to-income and price-to-rent levels, change in mortgage-to-GDP and change in construction-to-GDP ratios, and the relative price-city-to-country indicator.
  • Here are the seven cities facing the greatest risk of a housing bubble, according to UBS.
  • Visit the Markets Insider homepage for more stories.

Swiss bank UBS published its 2019 Global Real Estate Bubble Index on Monday, revealing which cities around the world are fairly valued, as well as those that are facing the greatest risk of a real estate bubble.

"The UBS Global Real Estate Bubble Index puts the housing market into long-term perspective and is designed to track the risk of property price bubbles in global cities," the firm said in the report.

According to the bank's scale, any city that falls above 1.5 on the index is considered at risk for a bubble. In order to determine the index score for each city, UBS evaluates five sub-indices including price-to-income and price-to-rent levels, change in mortgage-to-GDP and change in construction-to-GDP ratios, and the relative price-city-to-country indicator.

Read more: Wall Street titans including JPMorgan and Pimco are flagging a striking disconnect in markets that exposes how worried investors are about another crash

All of the cities UBS tracked within the eurozone saw their index scores increase due to low interest rates, the bank said. Average price growth has also stalled for the first time since 2012, while the average index score declined slightly in 2019, the report found.

Here are seven cities around the world with the highest risk of a real estate bubble, ranked in increasing order of vulnerability, according to UBS:

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7. Paris

7. Paris

2019 bubble index score: 1.54

2018 bubble index score: 1.44

"Real housing prices in the French capital have reached a new all-time high after a 5% increase in the last four quarters," UBS said in the report.

The firm added:"Prices have been decoupling continuously from the rest of the country since 2006."

Source: UBS

6. Vancouver

6. Vancouver

2019 bubble index score: 1.61

2018 bubble index score: 1.92

"In just a couple of quarters year-on-year price growth rates have reversed from over 10% to -7%," UBS said in its report. "Sky-high valuations and overstretched affordability have made the market vulnerable to even minor demand shifts."

Source: UBS

5. Frankfurt

5. Frankfurt

2019 bubble index score: 1.71

2018 bubble index score: 1.43

"Frankfurt's housing market over the last 10 years has been characterized by accelerating price growth which has outpaced the country average annually," UBS said in the report.

The firm continued: "Last year real prices soared 11%, the highest rate among the cities covered in this report."

Source: UBS

4. Amsterdam

4. Amsterdam

2019 bubble index score: 1.84

2018 bubble index score: 1.65

"Amsterdam has recorded the strongest price increase of all cities in the study since 2015," The bank said. "On average, real prices have increased by close to 10% a year, outpacing income growth by far."

Source: UBS

3. Hong Kong

3. Hong Kong

2019 bubble index score: 1.84

2018 bubble index score: 2.03

"Fueled by strong investor demand, general positive sentiment and the fear of missing out on capital gains, the real price level in Hong Kong more than doubled between 2008 and 2018," UBS said.

The bank added: "However, the weaker economic outlook has cooled residential buyer sentiment recently."

Source: UBS

2. Toronto

2. Toronto

2019 bubble index score: 1.86

2018 bubble index score: 1.95

"Real housing prices in the city almost tripled between 2000 and 2017," The bank said in the report. "As in Vancouver, local authorities introduced a foreign buyers' tax, rent controls and tighter mortgage standards to tackle worsening affordability."

Source: UBS

1. Munich

1. Munich

2019 bubble index score: 2.01

2018 bubble index score: 1.99

"Housing market valuations have soared thanks to the strong and well-diversified local economy, solid population growth and insufficient new supply," the firm said in the report.

UBS added: "Real prices have more than doubled over the last 10 years, while real rents have risen by 40%."

Source: UBS

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