At Mills Realty we must keep an eye on the local, national and global real estate markets in order for us to make good investment decisions for our clients. Also, to help members of the Real Estate Investment Conglomerate (REIC) to make quality decisions and assist the participants of the American Dream Service program.
Housing markets in big cities around the globe are overheating, but Chicago’s is still a bit chilly.
That’s the conclusion of a recent report by Swiss Bank UBS that ranked 18 financial centers based on its “bubble index,” an indicator that measures home prices relative to other metrics, like incomes. Chicago ranked dead last, the only city where UBS found homes to be undervalued.
Home prices in the Chicago area fell 35 percent between 2006 and 2012 but have only recovered by 10 percent in the past four years, according to the report.
“The pace of price recovery has been weak due to relatively high unemployment and fiscal problems,” the report said.
But look on the bright side: At least Chicago-area homeowners don’t have to worry yet about prices crashing again like they do in Vancouver, which UBS found to have the greatest bubble risk. London, Stockholm, Sydney, Munich and Hong Kong have also entered the danger zone, with bubble scores exceeding 1.5.
“In a world in which more than a third of all government bonds offer negative yields, investing in tangible assets remains popular,” the report said. “So it is hardly surprising that housing markets are again overheating, just a few years after the last major wave of global correction. We see a significant overvaluation of housing markets in some key financial centers.”
But Chicago’s bubble score is -0.7, in the “undervalued” range, according to UBS. New York and Boston are “fair-valued,” while San Francisco is “overvalued.”
UBS computes its index by compiling a weighted average of indicators for each market including price-to-income and price-to-rent ratios, measures of mortgage lending and construction activity. Chicago had the lowest price-to-income and price-to-rent ratio of all 18 cities.
Data By ALBY GALLUN