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'Overheating' of global housing markets amid a pandemic stimulus?

Despite the global pandemic recession, global domestic prices continue to rise in major markets. Many fear that the market will fall if governments launch stimulus packages later in this year. for sale in pearl

At the heart of the current crisis is a paradox: government stimulation packages aimed at preventing wider economic disasters actually promote wider inequality in the housing market, perpetuating a vicious cycle.

Packages that pump cheap money into developed countries' economies maintain high property and share prices. This underpins the credit power of homeowners, ensures shareholder profits and maintains bank balance sheetsóbut also at the same time impoverishes owners and increases the number of people unable to reach the property ladder.

A story of two housing crises in cities: Dublin and Berlin

Many developed countries see house prices rise even as the rates of coronavirus infection continue to rise. Prices rose in eight out of ten high and medium-sized countries in the second quarter of the year, with the US price up by 5% a year earlier and the German rate up by 11%, according to Swiss banking giant UBS.

Over half of the 25 major cities analyzed in the 2020 Global Real Estate Bubble Index are at risk or overvalued, UBS found. The typical signs of a bubble ó prices are decoupling from local incomes and rents and excessive lending or construction ó are beginning to appear.

The Berlin tenants added a banner that reads a 250 percent rental increase to a balcony of the building to protest an increase in rent. In the course of upgrades

In the last decade, Berliners saw their rents rise and the city government has frozen rents for 5 years.

Global hot places

Toronto was the only major housing bubble risk city in North America, while the cities of Vancouver, Los Angeles, San Francisco, and New York were seen as overrated, but not bubble-prone, UBS said. Boston was fair value while Chicago was the only city to be undervalued in the region.

The greatest risk lies with Europe and Hong Kong. Top of the list are German cities Munich and Frankfurt and the Polish capital Warsaw.

During the last 12 months, Lithuania, Estonia, Poland, Slovakia and Ukraine all reported double-digit price growth. The bubble risk territory is also in Paris, Amsterdam and Zurich, UBS said.

Other "overvalued but not bubble threatened" housing markets include London, Tokyo, Stockholm, Geneva, Tel Aviv, Sydney and New York. In just four of the 25 analyzed cities, home values were reduced: Madrid, San Francisco, Dubai, the UAE and Hong Kong. In 2006, there were less towns with negative price growth.

Optimism displaced?

Global real estate prices held their own during the economic hit of the coronavirus pandemic and Sean Darby, Jefferies' Global Equity Head, told the US TV station CNBC that it was a "great backstop" for politicians.

"It was important that the domestic bank system was not affected by asset deflation," he noted.

But residential house prices have been inflating in most parts of the world for several years. Economic logic suggests that after the 2008 financial crisis they should have collapsed. Real house prices fell by 10% during the crisis, but were spared nearly to zero by global central bank interest rate cuts and huge fiscal stimulus programs.

In turn, this triggered a new boom that sustained an asset class that was crucial to the financial sector after 2008 in crisis. Low rates increase the affordability of monthly mortgages and make houses more attractive to buy, as the incomes on alternative and safe investments are depressed. Such household income support, as well as holiday mortgage repayments, saves unemployed workers from selling their homes.

Like global exchanges, the real estate markets grew sharply during the current crisis, but unemployment grew and wages stagnated. Rising domestic prices sustain investment levels, but are also driving inequalities in the developed world, with higher prices and stagnating wages nominally meaning higher rents and more buyers for the first time exempt from the property ladder.

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