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Nordic Update

UBS: Stockholm no longer in bubble-risk territory

Publicerad: 4 oktober 2018, 16:47

Foto: Sverrir Thór.

The Stockholm housing market is overvalued and there are indications of major imbalances in the market, while the city has left bubble territory. The greatest risk for housing bubbles is in Hong Kong and Munich with Amsterdam and London as the second and third European cities in bubble territory.

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In UBS’ annual global real estate bubble index report, published recently, the Swiss bank notes that housing prices in Stockholm have fallen during the past year.

“After years of excessive price growth, a correction set in in Stockholm as stricter amortization regulations reined in demand and caused the city to drop out of bubble-risk territory,” the bank writes in its report.

According to UBS’ calculations, Stockholm is assigned the index value 1.45 which indicates a high level of overvaluation while it takes 1.5 to be in the bubble-risk territory. Hong Kong is assigned 2.03 and Munich 1.99.

Moreover, UBS writes in its report that inflation-adjusted prices climbed by 60 per cent from 2007 to 2017 and thus outpaced both income and rental growth.

“The boom stemmed from marked population growth in the city center area. But prices have been dropping since the middle of last year and are off 7% from their peak, despite continued attractive financing conditions. The correction seems to be the direct consequence of an exaggerated price surge in recent years that strained affordability and triggered stricter amortization requirements,” UBS writes.

An interesting fact is that among the cities included in the report, the price-to-income ratio is one of the lowest in Stockholm. According to UBS, it takes six years for a skilled service worker to earn enough to pay for a 60 sq.m. flat in central Stockholm, while it takes over 20 years in Hong Kong and 15 years in London. On the other side, the price of a flat in Stockholm is equal to circa 32 annual rents for an equally big apartment. In that sense, Stockholm is in the pricier range, only four years less than Zurich and 20 years more than Chicago, which is a gravely undervalued city according to UBS.

Source: UBS.

Sverrir Thór

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