Is the World One Giant Overvalued Real Estate Bubble?

Let’s hop into the DeLorean, adjust the dials and let the flux capacitor take us back to October 2020. It wasn’t that long ago, things weren’t so different as they are now, but nonetheless, if we don’t have a sense of history, how can we gain that important context, that vital historical backdrop that Jason always encourages us to have?

In October 2020, one year ago, the share of new homes purchased before they were built was at its highest since 2005. 39% of all homes were purchased before construction! This rate is most likely higher now considering the home and supply shortage we are experiencing, but we won’t know until the official report comes out. So even if October 2020 was only a year ago, it’s like that beautiful old song that says: “what a difference a day makes.” In this case, what difference will a year make?

Overvalued Bubbles Always Pop

Everyone seems to be talking about one thing right now: have these recent increases in housing prices really put us in a real estate bubble? And if we are in a bubble, when will it pop? Let’s take a look around. Our entire world is full of fiat currency, just flooding the planet in the form of negative interest rates and cheap money that is lower than the cost of real inflation. But now, maybe for the first time ever, interest rates are below the official rate of inflation. As Jason recalls, that might be a first! But then they allow you to borrow money on a thirty year fixed rate mortgage backed by government sponsored entities at maybe 2.75% if you’re owner occupied, a bit more for investors, but still lower than the official stated rate of inflation! Unbelievable. So what is that doing? It’s causing all this bubble concern, some of which is valid in cyclical markets. In linear markets however, it’s most likely not a cause for concern.

Visual Capitalist gave us some international food for thought last week. They ranked markets around the world for their bubble risk with the following criteria: > 1.5 = bubble risk, 0.5-1.5 = over valued, < 0.5 = fairly valued. So let’s take a trip around the world and see how this relates to the linear, cyclical and hybrid markets that Jason always talks about. He’s already mentioned many of these markets and he would actually put more of these cities in bubble territory than Visual Capitalist did here, but hey, it’s their index.

What Goes Up Must Come Down

So, what do they say? The number one most overvalued bubble market in the world according to Visual Capitalist is: Frankfurt, Germany. Number two: Toronto, Canada. Number three: Hong Kong. And continuing down the list of bubble territory markets, you’ll find Munich, Zurich, Vancouver, Stockholm, Paris, Amsterdam, Tokyo, Sydney, Miami, Los Angeles, Geneva, London, Moscow, Tel Aviv, San Francisco, Boston and New York.

Fairly valued markets according to Visual Capitalist include Singapore, Madrid, Milan and Warsaw, whereas the only undervalued city mentioned in the index is Dubai, which actually has a negative score. Having ranked only 25 cities, they didn’t even mention any of the linear or hybrid markets in the US, as they didn’t get that far down the list.

But how bubbalicious is the world exactly? These markets, because they have over appreciated, will come down the most, kind of like a rollercoaster; what goes up, must come down. The higher they go, the harder and faster they will fall. And you can be sure we’ll be waiting to see just how far they’ll go.

Ashley & The Jason Hartman Team