The World’s Biggest Real Estate Bubbles in 2018
With the current stock market bull run reaching nearly 10 years in length, it’s understandable that many investors are nervous about the end of the party coming sooner than later.
However, as UBS notes in its latest report, there is also growing concern about another prominent bubble that’s been in the works since the aftermath of the financial crisis.
Large amounts of easy money have fueled real estate bubbles in the world’s major cities – and the Swiss investment bank now sees the property markets in six global cities as being at risk.
The Bubble Index
In the 2018 edition of the bank’s Real Estate Bubble Index, here are the major cities around the globe that are in or near bubble territory:
Any city with a score over 1.5 is considered at “Bubble Risk”, and right now those include two cities from Canada, one from Asia, and three from Europe.
Hong Kong (2.03) tops the index this year, leaping past Munich (1.99), Toronto (1.95), and Vancouver (1.92) which all remain at bubble risk themselves. Amsterdam and London are the two other cities that score higher than a 1.5 on the rankings.
It’s also very important to note that there are four cities that score just under the 1.5 threshold: Stockholm (1.45), Paris (1.44), San Francisco (1.44), and Frankfurt (1.43).
A Coming Correction?
Investor and writer Howard Marks has noted in recent months that the wider market is in its “8th inning”, and the same case could be made for real estate.
Historically, investors have had to be alert to rising interest rates, which have served as the main trigger of corrections.
– UBS Report
According to UBS, the cracks are already starting to show at the top end of the market, with housing prices declining in half of last year’s list of bubble cities. Some of the worrying factors include rising interest rates, as well as growing political tensions as the crisis of affordability makes it harder for average people to live in these global financial centers.
Here is annualized growth in percent over the last year, as well for the last five years for cities in the index:
As you can see, some of these cities have had negative growth over the last 12 months, including New York, Toronto, Sydney, London, and Stockholm.
Charting Specific Markets
In Hong Kong, you need to work 22 years to afford a 645 sq. ft (60m²) apartment, when that took just 12 years just a decade ago. In recent years, Hong Kong’s ascent to becoming one of the biggest real estate bubbles has become very evident, especially when juxtaposed with Singapore:
In Canada, the two cities in the index are starting to go in alternate directions, although recent signs also point to a potential slowdown in Vancouver:
Finally, the U.S. market – which felt the pain of the housing crash in the late 2000s – is home to zero cities in the bubble risk category, according to UBS.
Whether it is a bubble or not, many people agree that San Francisco’s housing situation is still a crisis. In the Bay Area hub, 60% of all rental units are in rental-controlled buildings, and the median single-family house price is a hefty $1.7 million.
3 Lithium Insights for Today’s Investors
Discover three key insights that could shape the future of lithium, from soaring demand to supply challenges.
3 Essential Insights for Lithium Investors
The lithium market is experiencing rapid growth, with the critical mineral witnessing a 30% rise in consumption in 2022. But what is causing this lithium boom?
Our sponsor, iShares, takes a look at three insights that are shaping the future of the lithium landscape.
1. Soaring Demand Until 2050
The rapid global shift toward clean energy has set the stage for a surge in lithium demand.
Projections from the IEA show that demand for the so-called white gold is expected to increase tenfold by 2050 in the Net Zero Emissions scenario.
|2022 (kt)||2050P (kt)|
|Grid Battery Storage||4||75|
The reason for this explosive growth comes primarily from lithium’s pivotal role in lithium-ion battery technologies.
2. Lithium’s Dominance in Battery Technology
Lithium-ion batteries are a central piece of the decarbonization puzzle, and could account for approximately 95% of demand by 2030.
These batteries are used to store electricity generated from renewable sources like solar and wind power and are also the dominant technology powering electric vehicles.
3. Lithium Supply Challenges
As the world shifts toward clean energy technologies, lithium supply and demand dynamics are entering uncharted territory.
Forecasts suggest that demand for lithium could outstrip supply as early as 2030.
|Year||Demand (million tons of LCE)||Supply (million tons of LCE)|
Lithium carbonate equivalent (LCE) represents the lithium content in compounds, expressed in terms of lithium carbonate. This form is a primary processed variant of raw lithium, utilized in batteries and various other applications.
The projected supply-demand imbalance can be attributed to various factors, including reduced production caused by delays in establishing new mines due to technological challenges and financial limitations, as well as geopolitical complexities within the market.
Navigating the Lithium Frontier
As the world gears up for a net-zero emission future by 2050, lithium has a key role to play in this transformation.
Investors looking to gain exposure to lithium may want to consider an ETF that seeks to track an index composed of companies primarily engaged in lithium mining and/or manufacturing.
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