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Real Estate Bubbles: The Six Cities at Risk of Bursting

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What do Vancouver, London, Stockholm, Sydney, Munich, and Hong Kong all have in common?

According to economists at UBS Wealth Management, these six cities all have the notorious designation of being the real estate markets furthest into “bubble” territory:

Real Estate Bubbles

The major Swiss bank recently published the results of their 2016 Real Estate Bubble Index. The report found that since 2011, the six cities in “bubble” territory have seen housing prices soar at least 50% on average. Meanwhile, in other comparable markets, the average increase in prices was less than 15% over the same timeframe.

At the top of the list, not surprisingly, sits Vancouver – a city that has been grappling with real estate mania for some time.

Here’s Vancouver’s rise, compared with other select markets in North America.

North American Cities

Note that San Francisco is in the “overvalued” zone, but getting close to an official bubble designation.

A Delicate Balance

Why are these housing markets so overvalued?

It comes down to three main drivers, according to UBS: a flood of foreign capital, loose monetary policy, and bullish expectations from buyers.

Flood of foreign capital: Wealthy Chinese people are leaving the country in droves, and they are looking at places to park their capital. Cities like Vancouver and Sydney make sense because of their proximity. Cities such as London or New York, on the other hand, may appeal because they are global financial centers.

Loose monetary policy: Low interest rates, some which are zero or even negative, work to artificially inflate asset prices. Lenders can get mortgages for rock-bottom rates, and systematically bid up the price of real estate. We are currently undergoing one of the biggest financial experiments of all time, as central banks have run out of levers to pull. Rates are near zero and there has already been unprecedented amounts of liquidity pumped into the system through quantitative easing.

Bullish expectations: At the end of the day, people will continue to bid up real estate bubbles if they think they will profit from it. This is human nature, and it will take a shift in overall market sentiment to hinder this.

From our perspective, the most interesting and concerning aspect is the loose monetary policy found worldwide. If central banks raise rates right now, markets will crash.

If they continue to postpone due to weak economic data, the housing bubbles will continue to inflate. The more they inflate, the more sensitive they are to any trigger that could pop them.

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Mapped: The 10 U.S. States With the Lowest Real GDP Growth

In this graphic, we show where real GDP lagged the most across America in 2023 as high interest rates weighed on state economies.

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The Top 10 U.S. States, by Lowest Real GDP Growth

This was originally posted on our Voronoi app. Download the app for free on iOS or Android and discover incredible data-driven charts from a variety of trusted sources.

While the U.S. economy defied expectations in 2023, posting 2.5% in real GDP growth, several states lagged behind.

Last year, oil-producing states led the pack in terms of real GDP growth across America, while the lowest growth was seen in states that were more sensitive to the impact of high interest rates, particularly due to slowdowns in the manufacturing and finance sectors.

This graphic shows the 10 states with the least robust real GDP growth in 2023, based on data from the Bureau of Economic Analysis.

Weakest State Economies in 2023

Below, we show the states with the slowest economic activity in inflation-adjusted terms, using chained 2017 dollars:

RankStateReal GDP Growth 2023 YoYReal GDP 2023
1Delaware-1.2%$74B
2Wisconsin+0.2%$337B
3New York+0.7%$1.8T
4Missississippi+0.7%$115B
5Georgia+0.8%$661B
6Minnesota+1.2%$384B
7New Hampshire+1.2%$91B
8Ohio+1.2%$698B
9Iowa+1.3%$200B
10Illinois+1.3%$876B
U.S.+2.5%$22.4T

Delaware witnessed the slowest growth in the country, with real GDP growth of -1.2% over the year as a sluggish finance and insurance sector dampened the state’s economy.

Like Delaware, the Midwestern state of Wisconsin also experienced declines across the finance and insurance sector, in addition to steep drops in the agriculture and manufacturing industries.

America’s third-biggest economy, New York, grew just 0.7% in 2023, falling far below the U.S. average. High interest rates took a toll on key sectors, with notable slowdowns in the construction and manufacturing sectors. In addition, falling home prices and a weaker job market contributed to slower economic growth.

Meanwhile, Georgia experienced the fifth-lowest real GDP growth rate. In March 2024, Rivian paused plans to build a $5 billion EV factory in Georgia, which was set to be one of the biggest economic development initiatives in the state in history.

These delays are likely to exacerbate setbacks for the state, however, both Kia and Hyundai have made significant investments in the EV industry, which could help boost Georgia’s manufacturing sector looking ahead.

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