“Bubble Watch” digs into trends that may indicate economic and/or housing market troubles ahead.

Buzz: Housing in Los Angeles and San Francisco scored as “overvalued” on a worldwide scale … again.

Source: UBS Global Real Estate Bubble Index

The Trend

Once a year, this investment house uses various economic and real estate measures to see what’s up and what’s not sustainable in key housing markets. For 2019, UBS ranked L.A. as the 13th diciest region among 24 cities tracked. San Francisco came in at No. 10. Both rankings — considered only “overvaluation” and not bubblish — were one notch lower than a year ago.

Most worrisome was Munich, scored as the city with the planet’s greatest bubble traits. And just one city — Chicago — was graded as “undervalued.”

The Dissection

The good news is UBS found places outside of California with far shakier housing markets.

Others joining Munich among the world’s “bubble status” category were Toronto, Hong Kong, Amsterdam, Frankfurt, Vancouver and Paris.

The “overvalued” markets — outside of the two aforementioned California cities — were Zurich, London, Tokyo, Stockholm, Geneva, Sydney, Tel Aviv, Madrid, Moscow and New York.

“Fairly valued” by UBS math were: Singapore, Boston, Milan and Dubai.

Of L.A., the report said: “Despite a booming local economy, affordability has worsened as real prices have surged by more than 50% since 2012, surpassing real income growth. We expect demand to weaken in 2020 given the area’s exposure to international trade. Unless there is a recession, a sharp house price decline seems unlikely, however, as even the high number of building permits currently may not ease the chronic housing undersupply anytime soon.”

Of San Francisco, UBS wrote: “The housing frenzy is on hold for now. Real prices have dropped in recent quarters and are almost 5% below last year’s peak. The weakness in the Bay Area’s housing market is exacerbated by diminishing foreign demand andthe historic low affordability for the working middle class. With the highest number of housing permits since the late 1980s, the supply shortage may start to ease and potentially accelerate the price correction.

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Other voices

The Fitch credit rating agency graded California’s housing market as “sustainable” for 2019’s second quarter vs. prices 5% to 9% “overvalued” one year earlier. This year’s most overvalued states were Idaho and Nevada (20% to 24% “overvalued”) followed by Texas and North Dakota (15% to 19% too high).

How bubbly?

On a scale of zero bubbles (no bubble here) to five bubbles (five-alarm warning) … TWO BUBBLES!

On one hand, this study shows Californians why many foreigners buy real estate here: To their eyes, it’s a relative bargain.

That doesn’t mean there aren’t risks. And what’s troubling in California markets is part of a common global storyline. UBS found that housing affordability challenges in major cities worldwide are cooling price inflation, despite ultra-cheap mortgage rates. Softening economic growth — whether there’s enough business oomph left to support a decade of fast real estate appreciation — is now the focus of these bubble watchers.

UBS doesn’t seem terribly worried about California: “Strong employment and income growth over the last decade have underpinned price increases in California,” the report stated.

And one lesson from the worldwide real estate collapse of a decade ago is that while housing may seem local, today it’s got global underpinnings. And a bubble bursting half a planet away could hit close to home, literally and figuratively.